Slowing demand worldwide coupled with robust production in the U.S. has put downward pressure on the price of oil. As a result, many oil and gas stocks have failed to keep pace with the stock market's torrid returns in 2024; the SPDR Oil & Gas Exploration and Production ETF has fallen 1% since the start of the year.

Chevron (NYSE: CVX), the integrated oil and gas giant, hasn't been immune to the volatility. With the stock falling 10% over the past year, investors may be considering a position in the energy producer. But is now a good time to buy? Let's dive into the company and the market backdrop to find out.

Chevron's integrated approach

Energy is the lifeblood of the economy. Without it, you can't power the data centers, factories, vehicles, and other things that make the modern world what it is today. According to the Energy Institute, oil is the most used energy source worldwide, making up nearly one-third of all energy consumption.

Investing in oil and gas companies like Chevron is a good way to get exposure to this vast industry. However, these investments come with risks due to the cyclical nature of the business. Oil producers are vulnerable to swings in the price of crude oil. During surging oil prices, these companies can make high margins and significant profits. On the flip side, when prices plummet, these companies' earnings fall with them.

Chevron is an integrated company, meaning it operates businesses across the supply chain. Chevron is one of the largest upstream operators in the U.S. These operations include exploring and producing crude oil and natural gas. Upstream operators' income is the most vulnerable to falling oil prices.

To mitigate some of this risk, Chevron operates downstream too. This business includes refining crude oil into fuel or petrochemicals or other products. It also transports refined products through pipelines and runs gas stations worldwide.

While this business isn't immune from changing oil prices, it does help smooth out the company's earnings over time, which is why Chevron has increased its dividend payout for 37 consecutive years.

What's going on with oil prices?

The price of WTI Crude Oil peaked at around $123 per barrel following Russia's invasion of Ukraine in 2022. It has since fallen to around $71 per barrel.

Falling oil prices can be attributed to several factors. One is that China's demand for oil has continued to fall. According to Reuters, China's refinery output has fallen six months in a row. This could be due to a slowing economy, but it's possible that the growing sales of electric vehicles (EVs) in China could be contributing to weaker fuel demand.

In addition, the U.S. continues to ramp up production. According to the Energy Information Administration, U.S. crude oil production was 13.5 million barrels per day the week of Oct. 11, a record.

Looking forward, OPEC and the International Energy Agency lowered their global oil demand growth forecasts. According to the investment firm Macquarie Group, the market will have a "heavy surplus" of oil supplies in 2025 due to weaker-than-expected demand this year. Wells Fargo agrees and believes that global oversupply could keep prices lower; the bank projects Brent Crude to average around $70 per barrel next year.

Is Chevron a buy?

Chevron remains a solid stock for investors for the long haul. The company is a significant player in the energy industry, and investors can earn a solid dividend of 4.3% annually. However, falling oil prices have hurt it. Through the first six months of the year, Chevron's revenue has remained flat, while its net income has fallen by 21%.

Robust U.S. production and falling demand could continue to weigh on crude oil prices, and thus Chevron's earnings, over the next year, which doesn't bode well for its near-term performance. For that reason, I think Chevron deserves a hold rating today.

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Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Courtney Carlsen has positions in Chevron. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.

Chevron: Buy, Sell, or Hold? was originally published by The Motley Fool