Chevron (NYSE: CVX) The share price has rebounded by more than 30% since chief executive Michael Wirth (pictured) said on Tuesday that “the dividend is number one priority and very secure”. The $ 2 billion stimulus package along with a slight improvement in oil prices contributed to the gains in stock prices over the past three days. Meanwhile, market analysts predict a tough time for oil producers amid the historic oil glut that only massive cuts or even a production freeze can correct.
Brent crude is expected to trade around $ 20 a barrel in the second quarter, while WTI could fall well below that range as storage swells, Goldman Sachs analysts said. The company projects a crude oil surplus of 14 million barrels per day due to the magnitude of the demand shock combined with a price war between Saudi Arabia and Russia.
“Any potential deal between the United States, Saudi Arabia and Russia to freeze or cut production is too little too late, it would take months to impact stocks globally and would be overshadowed by the current demand losses, “the investment bank said.
Chevron’s fortunes are directly correlated with oil prices. Market experts believe that it would be difficult for the big oil giants to survive if oil stays in the $ 20 range for long, as the majority of them have break-even points around $ 50 a barrel. Chevron generated $ 2.2 billion in profits last quarter on an average price of crude oil and natural gas liquids of $ 47 a barrel. Cheron’s stock price is currently trading around $ 70 after hitting a low below $ 60 per share last week.
Meanwhile, rating agency S&P lowered Chevron’s outlook from stable to negative, citing weaker financial performance for 2020 and warned of further downgrades if the company does not improve its credit metrics.
Chevron recently increased quarterly dividends from the 33rd right year; the company seeks to perpetuate its dividends by reducing its capital investments and suspending scheduled share buybacks.
Market analysts say the latest rise in oil prices is temporary, mainly due to a weaker dollar. “The volatility of crude will remain high and traders should not be surprised if this rally eventually fades,” said Edward Moya, analyst at OANDA.