Shares of Chevron (CVX 1.54%) have surged this year. They've rocketed 50%, recently hitting an all-time intraday high of $177.93 per share. That's an impressive performance considering the sell-off in the broader market, with the S&P 500 down almost 15% this year.
Even though shares of Chevron have never been higher, that doesn't necessarily mean they can't keep rising. Here's a look at the bull and bear case for buying shares of the oil stock right now.
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Why shares of Chevron could continue rising
Higher oil prices have been a major catalyst for Chevron this year. Crude oil has rocketed more than 50% since the start of the year, fueled by rising demand as pandemic restrictions and fears ease amid Russia's invasion of Ukraine.
Those higher oil prices are supplying Chevron with a gusher of cash. Its cash flow from operations nearly doubled to $8.1 billion in the first quarter, while its free cash flow totaled $6.1 billion. That's giving Chevron the funds to grow its business -- capital spending is on track to rise more than 50% this year -- while returning more cash to shareholders. Chevron increased its dividend for the 35th straight year in early 2022 and said it would buy back as much as $10 billion of its stock this year.
Chevron is investing in growing its oil and gas business while accelerating its plans to expand its renewable fuels business. It agreed to acquire Renewable Energy Group and signed a joint venture with Bunge to develop renewable fuel feedstocks to support future renewable fuel production. The company also took steps to enhance its carbon capture and hydrogen businesses. These investments support Chevron's vision of producing lower carbon energy in the future.
As long as oil prices remain strong, shares of Chevron could continue rising in the near term. Meanwhile, its longer-term investments in lower carbon fuels could help Chevron continue growing its cash flow in the future, giving its stock the power to keep rising.
Here's why Chevron's stock could run out of gas
The primary fuel for Chevron's stock price is oil. If crude cools off, Chevron's stock is likely to follow. A few factors could weigh on crude prices and Chevron's stock.
Demand is the biggest one. If elevated oil prices slow the global economy, gasoline, jet fuel, and diesel demand could decline. Meanwhile, if a new, more severe variant emerges that's resistant to treatments, vaccines, and prior infection, it could cause people to stay home, affecting petroleum product demand.
Meanwhile, supplies are another catalyst for crude prices. If there's peace between Russia and Ukraine, that will go a long way to calming global fears of a supply crisis that has pushed oil higher this year. Along those same lines, if oil producers significantly ramp up their drilling activities, that will add new supplies to the market to help offset Russian output and growing demand.
In addition to those near-term market fundamentals, there's the longer-term picture to consider. The global economy is slowly moving away from fossil fuels toward cleaner alternatives. While Chevron is also moving in that direction, it might not transition as fast as the economy. Its profits could therefore plunge if oil demand wanes in light of the accelerating adoption of cleaner fuels.
It's all about oil
It's hard to make a definitive case for buying Chevron here because a lot is riding on what happens with oil prices. If crude keeps rising, Chevron will have the fuel to continue accelerating its shift toward a lower carbon future while also returning a portion of its growing windfall to investors. However, if crude prices cool off, Chevron's stock could tumble. Because of that, investors need to have a high conviction that crude oil will stay hot to buy Chevron's stock at an all-time high.
