It’s Not Time to Buy Oil Stocks Like Chevron

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It’s still not time to buy oil stocks like Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX).

Chevron Stock: It’s Not Time to Buy Oil Stocks Like Chevron Yet

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With no demand and far too much supply, the world has run out of storage capacity. It’s why oil fell as low as $11.53. Worse, oil prices could fall even more, as a swelling glut of oil outweighs all efforts to cut supply. Granted, OPEC is cutting, but it’s not enough. In fact, the cuts are laughably low and won’t help much — if at all.

“Right now we don’t see any near-term relief for this oil market … we remain really concerned for the outlook on oil near-term,” says Helima Croft, global head of commodities strategy at RBC Capital. “There is still a lot of crude on the water right now that is going to refineries that do not need it.”

At this rate, oil could easily plunge to less than $10 a barrel. Until the coronavirus story disappears, and we begin to see price demand recovery, oil will not even see $20 a barrel again any time soon. So no, now is not the time to buy oil stocks like Chevron. In my opinion, Chevron stock could be headed back to $53.

There’s Still Far Too Much Oil Supply

At the moment, the world is producing far too much oil. On top of that, we’re running out of places to store it. It’s so bad some tankers are storing global oil supply at sea. Even OPEC has said “For oil markets, the massive oil-demand contraction is unprecedented. The current outlook looks extremely bleak, with oil markets anticipated to be severely tested on many fronts.”

OPEC Secretary General Barkindo added, “The oversupply would add a further 1.3 billion barrels to global oil stocks, thereby exhausting available global crude storage capacity by May.” That alone could pressure oil well below $20 a barrel. Worse, “Already, ports and refiners are turning away oil tankers. This will put even more downward pressure on prices and pose an existential threat to many companies,” analysts at the Eurasia Group said.

Also, OPEC may have cut production by the biggest amount in history.  Unfortunately, without sizable demand, oil prices could easily head lower.  Worse, OPEC is forecasting crude demand to fall by 6.8 million barrels a day in 2020.  “Even if OPEC members fully implement their share of the agreed cutbacks — a fragile assumption, given that many tend to cheat — they’d still be producing more than the market requires in the second quarter,” reports Bloomberg contributor Grant Smith.

The OPEC Meeting Was a Dud

Russia and the Saudis put the oil price war to bed. Unfortunately, the anticipation of the supply deal was far greater than what we ended up with. The two countries just agreed to cap production to 8.5 MM barrels per day for May and June 2020. OPEC+ will seek an additional cut of five million barrels a day from the G-20 meeting.

Unfortunately, that’s not enough to balance out a market crippled by demand shortfalls. Worse, the market is far from impressed by the latest announcements. Goldman Sachs even says oil may be headed back to $10 a barrel on the imbalance.

“Our updated 2020 global oil balance suggests that a 10 mb/d headline cut (for an effective 6.5 mb/d cut in production) would not be sufficient, still requiring an additional 4 mb/d of necessary price induced shut-ins. While this argues for a larger headline cut of close to 15 mb/d, we believe this would be much harder to achieve, since the incremental burden would likely need to fall on Saudi Arabia to be effective,” says Goldman Sachs.

Such news is crippling Chevron stock, which was down as much as $3.50 on the day. Exxon Mobil just pulled back $1.50, with BP (NYSE:BP) falling $1. In short, it’s just not enough of a cut to balance the market, and send markets higher.

The Bottom Line on Chevron Stock

With far too much supply in the world, OPEC being stubborn, and not enough demand, oil prices could easily pull back to $10 a barrel. We may have to wait for the coronavirus scare to end, and for demand to naturally return before we see oil back above $20 a barrel.

Right now, avoid oil stocks like Chevron. They’re headed lower yet again.

Ian Cooper, a contributor to InvestorPlace.com, has been analyzing stocks and options for web-based advisories since 1999. As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.

Ian Cooper, a contributor to InvestorPlace.com, has been analyzing stocks and options for web-based advisories since 1999.


Article printed from InvestorPlace Media, https://investorplace.com/2020/04/its-not-time-to-buy-oil-stocks-like-chevron-stock-just-yet/.

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