Chevron – A History Through Oil Declines

The S&P 500 has been overvalued for quite some, and there’s not a lot of blue chip companies jumping out at me these days to get excited about.  The oil market is the exception.  The massive oil decline of the past year has been exciting to watch in real-time, and oil stocks have been my focal point because real value is emerging in the sector as fear and panic continues to drive prices down.  Chevron has been one of my main focal points.  I decided to take a look back through history to see how Chevron performed during previous oil declines, because while past history doesn’t guarantee future performance, it can tell us a lot about what to respect.  History has a habit of repeating itself to an extent.

 

The 1980’s Oil Glut

The 1970’s was an extremely volatile time for the energy markets. From the 1973 OPEC oil embargo to the Iranian Revolution in 1979 (known as the “first oil shock” and “second oil shock,” respectively), the world saw oil prices spike to levels never before seen. These events helped set the stage for a grueling recession for years to come.

The world price of oil found itself peaking in 1980 at over $35 per barrel (over $100 per barrel in today’s dollars). However, the 1980’s recession saw the price of oil fall rapidly following its peak. In an effort to help prop up world oil prices, OPEC decreased oil production. This action had unintended consequences for OPEC, who found its market share drop considerably. By 1985, OPEC’s market share fell to less than one third worldwide. Saudi Arabia retaliated by producing oil at maximum capacity, creating a massive oil surplus. As a result, West Texas Intermediate crude oil collapsed to less than $10 per barrel, reaching a low of $9.75/barrel on April 1, 1986.

 

Throughout all this worldwide turmoil, how did Chevron fair?

 

1986-1989 CVX

Chevron’s stock price performance from August 1, 1985, to September 29, 1989.

 

1986-1989 Oil

West Texas Intermediate crude oil price performance from August 1, 1985, to September 29, 1989.

 

Chevron's trailing 12-month P/E ratio from August 1, 1985, to September 29, 1989.

Chevron’s trailing 12-month P/E ratio from August 1, 1985, to September 29, 1989.

 

Each of these graphs tells a story, but when they are overlayed, a clearer picture emerges.

1986 CVX vx OIL vx PE

Key Takeaways

  • WTI crude closes at its lowest price of $10.42 on March 31, 1986.
  • Chevron closes at its lowest post-oil collapse price of $34.25 on July 15, 1987.
  • Chevron sees its minimum P/E ratio of 7.41 on February 4, 1986.
  • Chevron sees its maximum P/E ratio of 37.50 on March 24, 1987.
  • Chevron’s closing stock price low lagged WTI’s closing low by 471 calendar days.
  • Chevron’s P/E ratio at its lowest close on July 15, 1987 was 30.91.

 

The 1998 Oil Crisis

1998 showed WTI oil prices that were, when adjusted for inflation, the lowest in history. This was much a result of the Asian Debt Crisis, beginning in 1997, where Asian currencies crashed across the board versus the US dollar. These crashing currencies and escalating debts led international investors to abandon lending to developing countries, causing economic slowdowns throughout the world. Simultaneously, Saudi Arabia refused to cut production. Oil closed at a low of $10.72 per barrel on December 10, 1998, and did not recover until the latter half of 1999.

These events set the stage for the Oil Supermajors that we more closely know today.

  • Exxon merged with Mobil in 1999, becoming ExxonMobil.
  • Total merged with Petrofina in 1999 and Elf Aquitaine in 2000, becoming Total S.A.
  • BP acquired Amoco in 1998 and Atlantic Richfield Company in 2000.
  • Chevron acquired Texaco in 2001.
  • Conoco, Inc. merged with Phillips Petroleum Company in 2002, becoming ConocoPhillips.

 

Throughout all this worldwide turmoil, how did Chevron fair?

 

1998 CVX

Chevron’s stock price performance from January 2, 1997, to December 30, 1999.

 

1998 Oil

West Texas Intermediate crude oil price performance from January 2, 1997, to December 30, 1999.

 

Chevron's trailing 12-month P/E ratio from January 2, 1997, to December 30, 1999.

Chevron’s trailing 12-month P/E ratio from January 2, 1997, to December 30, 1999.

 

 An overlay of this data paints the following picture.

1998 CVX vx OIL vx PE

Key Takeaways

  • WTI crude closes at its lowest price of $10.72 on December 10, 1998.
  • Chevron’s stock price closes at $84.63 per share on December 10, 1998.
  • Chevron’s closing P/E ratio on December 10, 1998, was 28.02.
  • Chevron sees its maximum closing P/E ratio of 43.15 on April 29, 1999.
  • Chevron’s stock price closes at $103.56 per share on April 29, 1999.
  • WTI crude closes at $18.53 per barrel on April 29, 1999.

 

The 2008 Financial Crisis

This time period in history needs little introduction as it is still fresh in most of our minds. The quick and dirty summary: The housing bubble bursts, financial institutions that provided extreme liquidity in their lending practices with the mindset that housing values would continue to rise indefinitely (i.e. “bad subprime mortgages”) suffered greatly, some collapsed entirely, real estate values plummeted and still have not recovered to this day, and the government rushed in with bailouts on the backs of the taxpayer to prop up many of these financial institutions. The end result was the collapse of the entire stock market, and commodities fell in kind.

But once again, how did Chevron fair?

 

Chevron's stock price performance from January 2, 2008, to December 31, 2010.

Chevron’s stock price performance from January 2, 2008, to December 31, 2010.

 

West Texas Intermediate crude oil price performance from January 2, 2008, to December 31, 2010.

West Texas Intermediate crude oil price performance from January 2, 2008, to December 31, 2010.

 

Chevron's trailing 12-month P/E ratio from January 2, 2008, to December 31, 2010.

Chevron’s trailing 12-month P/E ratio from January 2, 2008, to December 31, 2010.

 

An overlay of this data paints the following picture.

2008 CVX vx OIL vx PE

Key Takeaways

  • WTI crude closes at its lowest price of $33.87 per barrel on December 19, 2008.
  • Chevron closes at its lowest post-oil collapse price of $56.46 on March 2, 2009.
  • Chevron sees its minimum P/E ratio of 4.96 on October 10, 2008.
  • Chevron sees its maximum P/E ratio of 15.20 on November 25, 2009.
  • Chevron’s closing stock price low lagged WTI’s closing low by 73 calendar days.
  • Chevron’s P/E ratio at its lowest close on March 2, 2009, was 5.70.

 

Afterthoughts

Oil markets are cyclical, with booms and busts happening every decade or so. We are currently in the middle of a bust. Chevron’s stock is currently in free-fall mode as the price of oil continues to drop and earnings are severely impaired as a result.

Rather than make predictions, I will leave the reader with nothing more than this information to digest. I will follow this article up at a later date with speculation based on this data.

All information found herein, including any ideas, opinions, views, predictions, commentaries, forecasts, suggestions or stock picks, expressed or implied, are for informational, entertainment or educational purposes only and should not be construed as personal investment advice. I am not a licensed investment adviser.

Anthony

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