Chevron Corporation CVX has expressed concern over the ABX2-1 bill, recently enacted by the state to enforce the oil refineries to maintain a minimum fuel stock. Although the regulators of California endorsed the legislation to stabilize the fuel supply and control the oil prices, the same has been considered flawed by the oil major.
An Insight Into the New Mandate
California has always been concerned about high gas prices, leading to its constrained relationship with oil companies. Geographically, the state is isolated from the U.S. Gulf Coast and Midwest refining centers, which compels it to either produce all its motor fuels or import from Asia. Therefore, to alleviate the fuel supply disruptions and diminish price volatility, the state, via the California Energy Commission, forced the oil companies to maintain a minimum fuel inventory and oversee the required maintenance and turnarounds of their refineries. The regular maintenance of oil refineries will also result in a minimal impact of production losses on fuel prices. The new bill is also accompanied by a strict penalty of $100,000 for each day of noncompliance.
CVX’s Concern: Risks Outweigh Rewards
CVX expressed disapproval of the new bill, arguing that the regulations would have two adverse consequences — increased fuel shortages and a permanent rise in consumer fuel prices. The company also cautioned that the bill would not only affect California consumers but also extend its risks beyond the state, affecting its neighbors in Arizona and Nevada. Therefore, CVX, via its letter, urged the lawmakers to proceed with caution, keeping the broader implications in mind. The company also dismissed the state’s perspective of higher prices, leading to higher profits, stating that this perspective is misleading and increases the complexity of new regulations.
CVX’s Zacks Rank and Key Picks
California-based energy major Chevron is one of the largest publicly traded oil and gas companies, with operations that span almost every corner of the globe. However, the company is grappling with high sensitivity to oil price fluctuations and relatively expensive valuation. Currently, CVX has a Zacks Rank #3 (Hold).
Investors interested in the energy sector might look at some better-ranked stocks like Mach Natural Resources LP MNR, TechnipFMC plc FTI and Targa Resources Corp. TRGP. While Mach currently sports a Zacks Rank #1 (Strong Buy), TechnipFMC and Targa Resources each carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Mach Natural Resources LP is an independent upstream oil and gas company that focuses on the acquisition, development and production of oil, natural gas and natural gas liquids reserves. The Zacks Consensus Estimate for MNR’s 2024 earnings indicates 205.56% year-over-year growth.
London-based TechnipFMC plc is a leading manufacturer and supplier of products, services and fully integrated technology solutions for the energy industry. The Zacks Consensus Estimate for FTI’s 2024 earnings indicates 251.11% year-over-year growth.
Houston, TX-based Targa Resources Corp. is a premier energy infrastructure company and a leading provider of integrated midstream services in North America. The Zacks Consensus Estimate for TRGP’s 2024 earnings indicates 71.58% year-over-year growth.
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