Energy prices are posting a comeback as the Brent benchmark reached the $100 level on the 3rd of this week on new concerns that Iran may attempt to disrupt supplies passing through the Gulf of Hormuz.  The recovery comes after energy prices posted a sharp drop over the past few weeks on higher output from Saudi Arabia and the weak economic news coming from Europe and other emerging markets. Prices are also being pushed up because of an ongoing strike by Norwegian oil workers that has resulted in lower output from the country. Oil prices are a major determinant of short term earnings of energy majors such as Chevron (NYSE:CVX), as a bulk of their valuation is derived from their upstream oil exploration and production businesses.
We have a $110 price estimate for Chevron, which is at in line with its current market price.
The volatility displayed by oil prices makes it difficult to accurately forecast the trends in the industry. Our outlook of a moderate increase in the prices over the Trefis forecast period is based on the fact that the demand for oil will continue to increase in the developing countries and constrained supplies and the increasing cost of exploring new resources. However, in the short term, oil is influenced by geopolitical factors and risks as well as other operational issues. Prices are also influenced by OPEC production quotas and supply shocks.
Over the past few weeks, higher output from Saudi Arabia and weak economic data from Europe helped pull prices down despite impending EU sanctions on Iran that could lower oil exports from the country. The trend is being reversed by uncertainty over the Iranian response to the sanctions and the Norwegian strike, which has slashed the country’s output by 13%. 
Lower oil prices are set to impact the Q2 results of Chevron. Energy companies are already under pressure due to the low natural gas prices in the U.S. Lower prices could result in the company posting a an annual as well as a quarterly drop in earnings. A recovery in oil prices in H2 can however help the company limit the impact of the fall for the whole year.
- OPEC Keeps Output Target Unchanged, Could Push Oil Prices Up (trefis.com)
- Exxon Has Harder Time Reaching $94 With Falling Oil Prices (trefis.com)
- Oil Prices May Have Hit Bottom: Expert Sees Energy Prices Rising, The Daily Ticker [↩] [↩]