Chevron Corp. had its most profitable year since 2014, reporting Friday that it earned $15.6 billion in net income in 2021, as commodity prices surged on the back of a global economic recovery.

The U.S. oil giant’s stock price reached its highest level ever before the news, closing at more than $135 per share Thursday, as investors reacted to Chevron’s announcement that it would raise its quarterly dividend by 6%.

Chevron’s...

Chevron Corp. had its most profitable year since 2014, reporting Friday that it earned $15.6 billion in net income in 2021, as commodity prices surged on the back of a global economic recovery.

The U.S. oil giant’s stock price reached its highest level ever before the news, closing at more than $135 per share Thursday, as investors reacted to Chevron’s announcement that it would raise its quarterly dividend by 6%.

Chevron’s annual earnings are a turnaround from 2020, when the company lost $5.5 billion after the global pandemic routed demand for oil and gas. Chevron reported fourth-quarter profit of $5.1 billion Friday, up from a $665 million loss during the same period last year. Chevron also said it generated $21.1 billion in free cash flow in 2021, its most ever.

“We’re delivering greater value to stockholders today, while working to meet the world’s growing energy demands in a lower carbon future,” Mike Wirth, Chevron’s chief executive, said in a statement.

The surging commodity prices have left investors wondering whether oil-and-gas companies will follow their historical impulse to increase drilling in pursuit of higher profits. Chevron is the first of the largest Western oil companies to report earnings, and analysts will look for tea leaves from Chevron’s management about whether the price signal has changed its calculus.

Following years of dismal returns from oil-and-gas companies, investors have pressured producers to moderate growth and return more cash to shareholders. Chevron and peers have responded by changing how they allocate cash, leading to a jump in their share prices and declines in the cost of capital, according to Rob Thummel, a senior portfolio manager at TortoiseEcofin.

While that is good for investors in the company, there are mounting concerns that there isn’t enough investment in new fossil-fuel supply to meet growing demand.

“Producers and management teams will continue to deliver on what the market is asking them, which is to return capital to shareholders, ultimately making it harder to keep up with global demand for oil and gas,” said Mr. Thummel.

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U.S. oil prices reached their highest levels since 2014 in January and were trading at around $87 per barrel Thursday. More analysts are predicting that oil prices will top $100 per barrel in 2022, as global economies continue to recover and investment in oil and gas production remains relatively restrained.

Chevron has said it is sticking to a relatively modest budget and will return increasing amounts of cash to shareholders. Chevron’s dividend increase Thursday marked the 35th consecutive year the company has raised the payout. Chevron has also said it would buy back as much as $5 billion of its stock after buying back $1.4 billion in 2021.

Chevron said in December it would increase capital expenditures in 2022 to $15 billion, a 20% increase from the previous year but still well below pre-pandemic levels. Chevron has said it would spend between $15 billion and $17 billion through 2025 compared with previous plans to spend $19 billion to $22 billion a year before the pandemic.

Despite the lower spending levels, Chevron said it set a record for oil and gas production in 2021, producing 3.1 million barrels a day, a modest increase from last year’s levels. The company’s oil-and-gas production unit earned $7.3 billion in 2021, compared with a loss of $1.6 billion in 2020.

Write to Christopher M. Matthews at christopher.matthews@wsj.com