How Much Can Chevron Stock Gain Once The Coronavirus Spread Is Contained?

Chevron Corporation (NYSE: CVX) stock dropped from $95 on March 6th to $80 on March 9th as Saudi Arabia increased oil production despite the ongoing demand slump in the wake of the COVID-19 outbreak – sending benchmark oil prices down by 25% from $45 to $34 per barrel. Though the stock has observed a slight uptick in recent weeks to close at $70 on March 25th, it has recorded a cumulative decline of 27% since March 6th (before Saudi Arabia’s announcement to increase production). The timing of Chevron’s post-coronavirus recovery is mainly dependent on the dialogue between Russia and Saudi Arabia to curb surplus oil production.

Growing coronavirus cases in China was the tipping point for oil price declines

• Benchmark crude oil prices started trending downwards in January as various cities in the Hubei province of China (with Wuhan as epicenter) were placed under quarantine.
• By early March, Brent crude had declined by 25% from $66 to $50 per barrel as the number of coronavirus cases started emerging in South Korea, Germany, and Italy.
• Oil prices took another hit on March 9th, declining by 25% to $34 per barrel, as Saudi Arabia increased production in response to Russia’s refusal to curb production and initiated the oil price war of 2020.
• With oil prices down by around 60% since early January, Chevron Corporation stock has dropped by 43%.

The coronavirus outbreak next hit the stock markets in February after the WHO’s global health emergency

• Due to the growing number of coronavirus cases outside of China, the WHO declared a global health emergency on January 31st.
• Chevron Corporation stock has declined by 35% to $70 on March 25th since the WHO declared a health emergency on January 31st (while the S&P 500 fell by 24%).
• Drawing lessons from the 2008 financial crisis, we see Chevron stock declined from levels of around $66 in May 2008 (the pre-crisis peak) to levels of around $40 in March 2009 (as the markets bottomed out) – implying CVX stock lost as much as 40% from its approximate pre-crisis peak.
• This marked a lower drop than the broader S&P, which fell by as much as 51%.
• We compare the performance of Chevron Corporation vis-à-vis the S&P 500 in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did Chevron Stock Fare During Coronavirus Crisis Compared to S&P?
• Chevron Corporation recovered post the 2008 crisis to levels of about $52 in early 2010 – rising by 30% between March 2009 and January 2010 primarily due to a 50% jump in crude oil prices from around $60/barrel in March 2009 to $90/barrel in January 2010. In comparison, the S&P bounced back by about 48% over the same period.

Dialogue Between Russia and Saudi Arabia Key Factor For CVX Recovery

• While the Saudi-led price war is likely to weigh on all U.S. oil producers in the near term, historical trends indicate that there is a strong potential for Chevron stock to bounce back from its March 25th price of $70 to a level above $105 (which is still well below the pre-coronavirus crisis peak of $120) in the long run. This 50% return and its timing would majorly depend on the dialogue between Russia and Saudi Arabia. Moreover, the broader containment of the coronavirus spread would increase demand for oil, and the U.S. might intervene to stabilize oil markets. (Note: the U.S. is the largest consumer and producer of oil)
• Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyses expected recovery time-frames and possible spread.
• Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture, and our complete set of coronavirus impact and timing analyses is available here.

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