Shares of Chevron (CVX 1.51%) rallied 10.8% in March. The oil stock got a big boost from crude prices, which soared last month.
Here's a look at what drove up oil prices and Chevron's stock in March.
Image source: The Motley Fool.
A war-fueled surge
Oil prices rocketed in March, fueled by the war with Iran. Brent, the global benchmark, surged 43% in March, closing at nearly $104 per barrel. That was its biggest monthly gain since 2020. Brent ended the first quarter up 71%, its largest quarterly move since 1990.
The war with Iran is significantly impacting crude prices. Iran has attacked ships leaving the Persian Gulf through the Strait of Hormuz. As a result, it has effectively closed the Strait to shipping traffic, choking off 20% of global oil and LNG supplies. Additionally, Iran has attacked energy infrastructure throughout the Middle East, causing production shut-ins and damage.
The surge in crude prices will boost Chevron's earnings. Every $1 increase in the price of Brent oil will increase Chevron's annualized earnings by $600 million. The prospect of much higher earnings is a big reason why Chevron's stock soared last month.
NYSE: CVX
Key Data Points
Other upside catalysts in March
The surge in crude prices wasn't the only positive for Chevron stock last month. According to reports, Chevron was nearing a deal with Venezuela to boost its oil output in the country. The agreement would give Chevron the right to produce from the Ayacucho 8 area, which holds meaningful reserves. A deal would allow Chevron to significantly increase its production in the country. It would further enhance Chevron's already robust growth prospects.
Meanwhile, Chevron and its partner, investment firm Engine No. 1, entered into an exclusive agreement with Microsoft at the end of March for a proposed gas-fired power project to support AI. Chevron and Engine No. 1 would build a 2.5 gigawatt power plant to support a large data center campus. The project would cost an estimated $7 billion and could start-up by next year. Building gas-fired power plants would enable Chevron to use some of the natural gas it produces to generate power under a long-term contract. These projects would enhance the company's growth profile while reducing its overall earnings volatility.
Is Chevron stock still a buy after its March surge?
Shares of Chevron have now rallied more than 30% this year, significantly outpacing the S&P 500's roughly 4% decline. However, Chevron has still meaningfully trailed the epic rise in crude prices. That's because the market believes the war will end soon and that oil will begin to flow through the Strait of Hormuz.
However, there's an increased risk that the conflict with Iran could escalate this week, sending oil even higher. Chevron stock could have significant upside if there's no ceasefire deal. Meanwhile, Chevron could still thrive even if oil prices are much lower. These factors make the oil stock a buy even after last month's surge.
