Easily one of the most talked-about topics right now, the surging price of crude oil has many drivers looking for relief from the pain at the pump. Unfortunately, few viable alternatives exist other than to acquire shares of oil giants like Chevron (NYSE:CVX). Basically, you’re not going to beat them, so you might as well join them. Therefore, I am bullish on CVX stock.
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An Unavoidable Bull Case Drives CVX Stock
To be sure, betting on a hydrocarbon investment seems old-fashioned, given current trends. Both political and ideological dynamics support the cause of green and renewable energy. Even within the divisive political realm, an understanding exists that a diverse energy portfolio is welcome for national security. Therefore, the bull case for CVX stock is largely unavoidable.
And that sentiment applies to those ardent hardliners of renewable energy infrastructure development. While Chevron may be old-fashioned from a narrative standpoint, it’s hardly irrelevant. Under the best of circumstances, renewable energy sources like wind and solar – due to their intermittent nature – cannot displace hydrocarbons.
Basically, someone has to keep the lights on when the sun goes down and the wind stops blowing.
However, the cynically beautiful upside catalyst now for CVX stock is that geopolitical dynamics have forced demand for crude oil to surge dramatically higher. As TipRanks reporter Michael Marcus pointed out last month, the agreement between Russia and Saudi Arabia to extend their oil production cuts until December of this year inherently sparked northbound mobility.
In addition, both these nations have strained relations with the U.S., to put it diplomatically. That’s important to note because neither Russia nor Saudi Arabia seem likely to do Americans any favors. Further, Russia has temporarily banned fuel exports to most countries to address domestic shortages, which have critically affected its agricultural industry.
All told, drivers shouldn’t expect relief anytime soon. Cynically, that’s another positive for CVX stock.
Chevron Benefits from Economic Realities
Aside from the geopolitical dynamics driving CVX stock higher, economic realities also bolster the hydrocarbon industry. Sure, electric vehicles may be all the rage. However, the average price of a new vehicle in this category rises uncomfortably close to the median U.S. household income. Therefore, combustion-powered vehicles will be around for a long time, bolstering companies like Chevron.
Because of the aforementioned reality, people need to pump gasoline in their cars. Effectively, Chevron and its ilk benefit from a captive audience. Sadly, they can charge whatever they want because both individuals and businesses may grind to a halt without oil.
Another factor to consider is rising traffic on roadways. According to the U.S. Federal Highway Administration, vehicle miles traveled have been steadily increasing since late 2020. Eventually, this metric will match and exceed pre-pandemic highs. When it does, that will pressure oil inventory even more, which should lift CVX stock.
Now, it’s true that during Chevron’s second quarter, sales and other operating revenues fell sharply on a year-over-year basis. Management explained that the red ink stemmed primarily from lower commodity prices. However, moving forward, this dynamic will likely flip, implying growth for CVX stock.
In addition, a shift to pre-pandemic norms may help lift the crude oil sector. With major corporations laying down the law regarding their return-to-office mandates, affected employees have little choice — obey or voluntarily quit and thus lose safeguards such as unemployment insurance. Again, with more people projected to be on the road, that’s another cynical positive for CVX stock.
Compelling Technical Support
For those considering Chevron stock, it may be possible that a technical floor exists around the $158 level. From late July through late August of this year, CVX charted horizontal price action around $158 before its recent rebound. Also, CVX’s 50- and 200-day moving averages stand between the $161 to $163 range, providing some confidence.
What’s more, the volume for the Oct 13 ’23 157.50 put spiked to 1,310 contracts on September 29. At the time, open interest sat at only 19 contracts, indicating sudden interest in this derivative. Also, this appears to be an institutional trade, as options flow data shows an increase of 1,003 contracts written for the put (options writing refers to an investor selling an options contract without owning it).
That’s important because the put writer appears to be betting that CVX stock won’t dip to or that much below the strike price. For retail investors, this transaction may translate to a floor at the $157.50 level.
Is CVX Stock a Buy, According to Analysts?
Turning to Wall Street, CVX stock has a Moderate Buy consensus rating based on eight Buys, four Holds, and zero Sell ratings. The average CVX stock price target is $192.17, implying 15.4% upside potential.
The Takeaway: CVX Stock is Unloved but Supremely Relevant
With people hurting from higher gas prices, it’s no secret that they’re not big fans of Big Oil. Nevertheless, with few alternatives available, one mechanism to mitigate the pain is to acquire shares of CVX stock. Unfortunately, the harsh reality is that circumstances might not get better anytime soon. Therefore, I believe that you might as well try to profit from it.
