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Should Exxon And Chevron Investors Fear A Trade War?

Apr. 04, 2018 3:25 PM ETChevron Corporation (CVX), XOM12 Comments
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  • The risks and probability of a trade war have greatly increased over the past month, and I feel investors should consider how their investments may be affected.
  • Exxon and Chevron are financially strong companies that can handle any realistic turmoil that may occur due to trade disputes.
  • In the short term if trade relations continue to deteriorate, it would likely adversely affect oil prices and hence their profitability.
  • However, I believe oil markets would once against stabilize, and hence, long-term investors should not be too concerned, whilst still being prepared for the possibility of higher volatility.


During the past month, there has been a great deal of news and debate surrounding the Trump administration's new trade tariffs and polices that are largely targeted towards China. These proved to be the catalyst required to finally return the volatility that was largely absent from last year's bull market.

Many investors, myself included, have been keenly following these announcements, concerned they may ultimately spiral into a full-blown global trade war with the United States and China at the center. Whilst I feel this outcome is still not inevitable, in my opinion it is wise for investors to consider how their investments would fare if such a situation eventuates. Even though the exact fallout is unknown, I believe it is possible to accurately estimate the general level of threat posed.

This article will not be discussing the trade policies themselves, but rather the effects that a trade war would likely have on ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX), and in doing so, address my headline question: should investors in these companies fear a trade war?

Title picture

Image Source: CNN Money

Possible Effects

Economic Activity

I'll begin with the main and most obvious threat that most businesses face from a global trade war: lower global economic activity that possibly leads to a recession. A recent article published by Bloomberg highlights the drag a trade war would have on the world's economic activity (see below).


Image Source: Bloomberg article (previously linked)

I suspect most readers are already aware that lower economic activity equals lower demand for oil and its related products, which is obviously an issue for Exxon and Chevron. However, I feel it is important to remember that oil demand is currently forecast to continue growing over the foreseeable future. Therefore, if lower economic activity reduces future oil demand, it may only be reducing

This article was written by

DT Analysis profile picture
I am no longer active, as I am taking a hiatus from finance to pursue business ventures in other sectors.  I hope that my analysis was helpful to investors across the years, thank you.

Analyst’s Disclosure: I am/we are long XOM.

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