Crude Oil Market
Oil prices have shown a significant rebound in the last three and half months, which makes me think that the worst for oil prices is over.
As such, we can expect much better results for Chevron’s upstream operations in the forward quarters. Brent crude oil last price of $45.37 per barrel is already up 47.1% from its 12-year low on January 20, of $30.84, while WTI crude oil last price of $44.66 per barrel is up 40.6% from its January 20 low of $31.77.
Last week the oil markets experienced major unexpected supply disruptions. The largest disruption came from Canada, where forest fires have torched large swathes of boreal forest near major oil sands operations.
Also last week, Nigerian militants attacked a platform operated by Chevron in the Niger Delta. The facility is currently shut-in and according to Chevron, they are assessing the situation and have deployed resources to respond to a resulting spill.
According to OilPrice.com, the collapse of the rig count and depressed drilling activity has already knocked about 700,000 barrels per day of oil production offline. However, the rig count could bottom out this year and begin climbing again. Nevertheless, the U.S. Department of Energy [EIA] does not expect oil production to rise in the short run even if the rig count rebounds.
Oil production is expected to continue to fall through 2017 as too few new wells come online to replace rapidly falling shale output. Total U.S. oil production is expected to decline from 9.43 million barrel per day in 2015 to 8.04 million barrel per day in 2017, a figure that includes rising output from the Gulf of Mexico.
According to EIA, the sharp decline in oil prices since the fourth quarter of 2014 has had a significant effect on drilling in the United States. The number of active onshore drilling rigs in the Lower 48 states fell 78% (from 1,876 to 412) between the weeks ending on October 31, 2014, and April 15, 2016, according to data from Baker Hughes (BHI). The decline in active rigs and well completions is projected to result in month-over-month onshore oil production declines of 120,000 barrel per day through September 2016.
All in all, market fundamentals continue to suggest that the combination of robust demand and weak supply growth will move global oil markets closer into balance by the end of the year.
Dividend
In its last quarter presentation, Chevron Corporation (NYSE:CVX) reiterated its priority to maintain and grow its dividend.
Source: 2016 1Q Earnings Conference Call Presentation
While waiting for a significant rebound in the price of oil, investors can enjoy the generous dividend currently yielding 4.20% a year.
The company has been paying dividends since 1970, and it has a long record of 27 years of continued raising its dividend.The annual rate of dividend growth over the past three years was at 6.8%, over the past five years was at 8.5%, and over the last ten years was at 9.4%. Even during the global economic crisis of the years 2008-2009, the company continued to raise its dividend. As such, it is hard to believe that Chevron would break that many years tradition.
