Chevron is Today's Dow Jones Winner on Iraq Tension

Increasing fighting in Iraq has the market's attention today and the Dow Jones Industrial Average (DJINDICES: ^DJI  ) is down 0.8% as a result. Kurdish troops have taken control of Kirkuk, a key northern city, and the Iraqi military is mobilizing as I write.

President Barack Obama indicated today that the U.S. is considering how it can assist in the conflict, presumably without getting into another prolonged war. And of course with so much oil coming from the Middle East, the price of West Texas Intermediate crude was up nearly 2% to $106.36.

Rising oil prices will hit you at the pump.

One stock climbing on rising oil prices
Twenty-six of 30 Dow components are in the red in late trading, and those that are moving higher are barely past breakeven. The company eading the way is Chevron (NYSE: CVX  ) , up 0.8%.

Chevron produced 2.6 million barrels of oil equivalent per day in 2013 and gets a vast majority of earnings from its upstream, or oil and gas production, business. As oil prices rise, so do profits in this segment, so a conflict like this could actually be profitable.

I've highlighted before that changes in oil prices are often like taking money from one pocket and putting it in another, because higher upstream profit means lower downstream, or refining, profit. But an extended Iraqi conflict would have a long-term impact on global production and prices, which would eventually trickle its way down to the pump.

WTI Crude Oil Spot Price Chart

WTI Crude Oil Spot Price data by YCharts.

The problem in the past has been that gas prices haven't risen along with oil prices. However, if scarcity becomes an issue, especially as Big Oil cuts back on capital spending this year, refineries won't be willing to operate at a loss and eventually gas prices have to go up.

Is this a reason to buy Big Oil?
That's not to say that investors should pile into Big Oil today. Oil prices ebb and flow over the long term, and while this conflict could impact pricing, as seen during the last Iraq war, I wouldn't bet on a long-term spike. Consumption in the U.S. is down significantly since 2005 and only 29.7% of oil consumed in the U.S. is imported, versus 60.3% in 2005.  

Oil is a global market and a shortage in Iraq would lead to higher prices elsewhere, but the world is less reliant on the Middle East than it was a decade ago. Plus, more than half of the new oil found last year was offshore, and shale production outside of the U.S. is still barely getting off the ground.

Chevron is a small winner today because of high oil prices, and it will benefit if they stay high. I just wouldn't bet on that over the long term given consumption trends in developed nations.

Do you know this energy tax "loophole"?
You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven't heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America's greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2992567, ~/Articles/ArticleHandler.aspx, 9/4/2015 5:18:04 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Travis Hoium

Travis Hoium has been writing for since July 2010 and covers the solar industry, renewable energy, and gaming stocks among other things.

Today's Market

updated Moments ago Sponsored by:
DOW 16,102.38 -272.38 -1.66%
S&P 500 1,921.22 -29.91 -1.53%
NASD 4,683.92 -49.58 -1.05%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/4/2015 4:30 PM
^DJI $16102.38 Down -272.38 -1.66%
CVX $76.67 Down -1.59 -2.03%
Chevron CAPS Rating: ****