Crude oil prices have cooled off considerably in recent weeks. Oil has fallen more than 20% over the past month, dropping below $100 a barrel. It's even further off its peak of more than $130 a barrel, a pinnacle it reached following Russia's invasion of Ukraine. 

However, Chevron (CVX 1.54%) CEO Michael Wirth thinks oil prices could rebound quickly. He told CNBC in a recent interview that "the tightness in supply hasn't gone away." Because of that, he sees "the risks remaining skewed toward the upside." That suggests oil stocks -- many of which have cooled off along with oil prices -- could have more upside than downside from here. 

What's driving oil prices these days?

Despite the recent slump, crude oil prices are still up about 25% this year. The main driver has been supply issues stemming from underinvestment during the pandemic. Most oil companies significantly reduced their capital investment in 2020, which is having a negative impact on production. As a result, there has been a razor-thin margin between supplies and demand, as consumption has recovered following the relaxation of most pandemic-related travel restrictions. 

The supply issues have only worsened following Russia's invasion of Ukraine. Governments worldwide have sanctioned Russia's oil industry, which is a big hit to global supplies since Russia is one of the three largest producers in the world.

However, despite the persistent supply issues, crude prices had come well off their high and are currently below where they were before Russia invaded Ukraine. The catalyst is the fear that the global economy will enter a downturn, likely impacting oil demand. 

While demand could come down in the near term, Wirth warned that the supply issue remains. He told CNBC that "now the real challenge for the globe, I think, is to see the investment in supply." Most oil companies remain reluctant to invest in new supply due to policy issues, making it more challenging for the industry to spend the capital needed to boost production. Because supply issues will likely remain, Chevron's CEO believes oil prices will probably head higher again.

Good news for oil producers

Chevron's assessment that oil prices are more likely to rebound than continue falling suggests the recent sell-off would be a good time for investors to buy oil stocks. Shares of Chevron have tumbled more than 20% from their peak last month and would likely bounce back quickly if crude prices turn higher. 

Another catalyst is that the oil giant will likely report surging profits for the second quarter when it releases those numbers later this month. Fellow oil giant ExxonMobil has already said its oil and gas production earnings alone would soar by as much as $3.3 billion in the second quarter. On top of that, Exxon sees its refining business producing up to $5.5 billion of additional profits, fueled by red-hot demand for gasoline, diesel, and jet fuel, which could bring its total up to $19.5 billion for the quarter. 

Oil giants' surging cash flow is giving them the money to repurchase more of their stock. Chevron plans to buy back a record $10 billion in shares this year, while Exxon intends to repurchase $30 billion by the end of next year. With their share prices down sharply in the past month, they can buy back more shares, which could give them the fuel to rebound even more quickly if oil prices bounce back. 

Meanwhile, a growing list of oil producers are returning their windfall from higher prices to shareholders via dividends. For example, Devon Energy and Diamondback Energy pay variable dividends that ebb and flow with their cash flow. They're currently making enormous variable dividend payments along with sizable base dividend payments. With shares of both oil companies falling 30% from their recent peak, their dividend yields are around 10%, assuming they maintain their current variable dividend levels over the next year. 

Oil stocks could have the fuel to produce big returns

While oil prices have cooled off on recessionary fears, Wirth believes they'll recover once the market realizes that the supply issues haven't gone away. Because of that, the recent sell-off in oil stocks could be a buying opportunity. If oil prices bounce back, as Chevron's CEO believes they will, their stock prices will likely follow crude higher. That's because they'll produce even more cash to return to shareholders until more favorable policies are in place to boost supply.