Why Chevron Stock Slumped Today
Key Points
Although an integrated energy company, it's still reliant on exploration and production activities.
These produce much of its profit.
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Chevron (NYSE: CVX) was one of a clutch of global oil companies whose stocks took a notable hit on the first trading day of the week. Chevron is always susceptible to changes in the price of its chosen commodity, and, sure enough, an erosion in that price, which began over the weekend, led many investors to sell out of the stock. It declined by nearly 3% on Monday.
The power of the oil price
At this point, it'll come as a surprise to very few people that the oil price decline resulted from the latest developments in the U.S. war with Iran. After several days of reciprocal, often intense, military action, both sides pulled back from the fighting. President Trump said that the U.S. was providing scope for renewed discussions aimed at easing the conflict.
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Image source: Getty Images.
As has happened numerous times in the now nearly six-month-old war, the prospect of a resolution cooled some of the fever in oil trading, reducing those prices.
Chevron is a vertically integrated oil company involved in all aspects of the commodity's value chain, from exploration and production (E&P) to transport, refining, and sale. However, it still leans quite heavily on E&P operations, which have lately accounted for the bulk of its profitability.
Heavy dependence
So, while Chevron isn't as directly exposed to price volatility as a pure-play upstream business like ConocoPhillips, that recent up-and-down dynamic still affects the company.
The flare-ups and pullbacks in the Iran war have been frequently sudden and hard to predict, so for the great many of us who aren't in the inner circles of the U.S. or Iranian governments, I'd recommend staying away from global energy stocks for now.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool recommends ConocoPhillips. The Motley Fool has a disclosure policy.
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