The recent rise in oil prices, and the reluctance of oil companies to invest in more production, should be good news for Chevron , according to UBS. Analyst Jon Rigby upgraded the stock to buy from neutral, saying in a note to clients Monday that Chevron is in one of the best positions to deliver returns when oil prices are high. The firm estimated that the price of oil will average at least $80 per barrel in 2022 and 2023. "Within the universe of Integrated Majors, CVX has one of the highest relative oil price sensitivities by virtue of its business mix," Rigby wrote. "The central theme of our updated forecasts is tight oil markets as post-Covid demand recovers but supply is constrained by a multi-year shortfall in investment and continuing industry caution in responding to price signals." UBS raised its price target on Chevron to $125 per share from $110. That is 9.4% above where the stock closed on Friday. Shares rose 0.8% in premarket trading Monday. Oil companies, in some cases pushed by activist investors, have committed to spend billions over the next decade on cutting their carbon emissions. However, Chevron has been more reluctant to push into renewals than some of its peers, and that, combined with less spending during this oil bull market, could lead to strong cash flow, according to UBS. "CVX has built real credibility in managing capital for shareholder value. The key in this respect in operating through-cycle in a consistent fashion. Historically, the sector has been guilty of succumbing to pro-cyclicality," the note said. "We think there is generally less risk this time around, but in CVX we expect a continuing high quality dividend and share buybacks ready to step up further with the balance sheet already the lowest geared in the sector and set to fall further." Shares of Chevron have been steadily climbing all year, rising 12% over the past three months and 35% year to date. -CNBC's Michael Bloom contributed to this report.
A sign is posted in front of a Chevron gas station on July 31, 2020 in Novato, California.
Justin Sullivan | Getty Images
The recent rise in oil prices, and the reluctance of oil companies to invest in more production, should be good news for Chevron, according to UBS.