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Oil prices will remain 'choppy': Chevron CEO

Expect oil prices to remain low and "choppy" this year, Chevron CEO John Watson said Friday.

"I believe prices will respond to physical things that are happening in the marketplace and political events all around the world," he said in an interview with "Closing Bell."

"Over time, I think market forces are going to determine where prices are going to go. Right now, we've got surplus oil. I expect this to be a choppy year, around the range that we're in today."

Crude prices have plummeted since last summer. On Friday, U.S. crude settled down 5 percent at $48.87 a barrel. Brent was last down 3 percent at $56.02.

"To see a 50 percent drop in prices, that, I think, surprised a lot of us," Watson said.

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He expects that over the next couple of years, oil prices will be lower than what they have been for the last few years. That doesn't mean he's ruling out $100 per barrel oil, but he said it will "take some time" to get back to those levels.

Meanwhile, Chevron is well equipped to handle the recent price environment because it remained flexible.

"We've kept a very strong balance sheet so that we can continue to invest through the business cycle in some of our key developments," he said.

The oil producer currently has an LNG project ongoing in Australia and deepwater developments in the United States.

"At the same time, we're committed to continuing to grow the dividend over time," Watson added.

By 2017, he expects Chevron's spending and dividend to be covered by the cash flow it generates from its new projects and its ongoing business. In the meantime, "we have capacity to get through this cycle of big projects," he said.

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He also stressed that with the demand in energy growing, investing in new oil fields is paramount.

"Oil demand is growing about a million barrels a day per year and … oil fields decline over time," he said. "Either costs will need to come down or prices will need to come up in order for some of those big investments to be made by all the players in the business around the world."

Watson also expects the company will continuing investing in the United States.

"We go where the opportunities are best, where the fiscal terms and costs make the most sense, and the U.S. has a very bright future."

—Reuters contributed to this report.