How Chevron Led the Dow Today

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) was pretty flat today, less than 24 hours after the news that the Federal Reserve would slow an $85 billion-per-month bond-buying program to $75 billion a month. The economic news of the day was a 10,000-person rise in initial unemployment claims to 379,000 last week. Jobless claims can be volatile week to week, but it's important to note that the four-week average was up 13,250 to 343,250, which isn't a great sign for the labor market.

Markets were mixed, and the Dow gained a meager 11 points. In commodities, gold dropped 3.5% today, while oil rose 1%, which helped Chevron (NYSE: CVX  ) reach the top spot on the Dow today.

Chevron shines on the Dow
There are a few reasons Chevron is up today and a few reasons to be leery of the stock in the long term. For today, traders are reacting to the climb in oil prices and a report from the U.S. Energy Department saying that U.S. crude-oil inventoried had fallen 2.94 million barrels last week to 372.3 million barrels. Distillate stockpiles fell 2.11 million barrels to 116 million barrels. 

Rising oil prices could boost revenue from exploration at companies like Chevron, but they also crimp refining margins, especially when the cost of gasoline is flat like it is today. Oil will be volatile in the long term, so investors should ignore the daily back-and-forth of the commodity market.

One concern facing investors this week is a ruling from a Canadian appellate court saying Ecuador can try to seize Chevron's Canadian assets to pay for a $9.5 billion judgment. This is a blow to Chevron, as it reverses an earlier ruling that deemed such a seizure impossible, and it prolongs Chevron's long-running headache from the acquisition of Texaco in 2001. 

My other concern regarding Chevron is the higher oil-production costs and lower oil demand in developed countries. Those trends have resulted in falling revenue and earnings over the past two years.

CVX Revenue (TTM) Chart

CVX Revenue (TTM) data by YCharts.

The market is excited about Chevron today, but long-term investors need to take a step back and ask whether long-term operational trends are in their favor. The chart above shows that they're not, and that's why I'm not jumping into Chevron's stock today.

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Related Tickers

4/17/2014 4:31 PM
^DJI $16408.54 Down -16.31 -0.10%
DOW JONES INDUSTRI… CAPS Rating: No stars
CVX $123.68 Up +1.85 +1.52%
Chevron Corp CAPS Rating: ****

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