Chevron's ( CVX ) refining profit margins could remain suppressed if excess refinery capacity issues continue to impact the industry. The CEO of Valero Energy Corp. commented that excess capacity exists in refineries in several regions including North America, Western Europe and Japan despite several refinery closures. We believe that Chevron's competitors like Exxon Mobil (NYSE:XOM), ConocoPhillips ( COP ), BP ( BP ) and Anadarko ( APC ) are also aware of the situation.
According to EIA data for OECD refinery utilization rates, utilization declined from 88% in November 2007 to 77% in August 2009. Low utilization rates still seem to be continuing and we can expect more refinery shutdowns to ease off margin pressure.
Our price estimate for Chevron's stock stands at $104 , a slight premium to the market price.