Buffett's Bet on Occidental Petroleum Pays Off: Too Late to Chase?
Sep 5, 2023
Occidental Petroleum Corp. (OXY) jumped 3.5%, or $2.24 per share, on Tuesday as crude oil prices surged higher after Saudi Arabia, the de-facto leader of the Organization of the Petroleum Exporting Countries (OPEC), announced that it would extend its voluntary production cuts of one million barrels per day (bpd) until the end of the year, according to the Saudi Press Agency.
Russia, an OPEC+ member, announced a production cut extension this morning. Alexander Novak, deputy prime minister, said that Russia’s oil export reduction of 300,000 barrels per day (bpd), down from 500,000 bpd, will run through the end of the year. Moscow is also cutting domestic production by 500,000 bpd through 2024.
Berkshire Hathaway, an American multinational conglomerate holding company, increased its stake in Occidental to 25% earlier this year. Warren Buffett, Berkshire’s CEO, started building the current position in early 2022 at $46.79 per share after an initial purchase and sale in 2019 and 2020.
Today, Occidental is trading around $67 per share, its highest level since February as the energy sector powers higher. Buffett’s last purchase was in June at $57.25 per share, in line with his previous purchases that were mostly made at below the $60 per share level. So far, it has been a winning position for the investing mogul.
Given that Occidental is trading well above the price of any previous purchases by Berkshire, we may not see more buying from Buffett’s company at these prices. However, that doesn’t mean there isn’t further upside for the stock or strategic buying opportunities amid future volatility.
Occidental is a U.S.-based hydrocarbon exploration company that explores, develops, and produces oil and natural gas. The company is also involved in carbon management technology and chemical manufacturing.
From its June lows, Occidental is up 20%, while crude oil futures (/CLV3) are up 30%, which explains the stellar performance. If oil prices remain elevated or continue to rise, OXY is likely to perform well. Still, the company's operations are diversified for an oil and gas company, something that attracted Buffet’s attention.
Currently, a $1 billion carbon-capture project is taking place in the Permian Basin, the first of a planned fleet of direct air capture plants that will remove carbon dioxide from the air. This has attracted attention among investors who are giddy about the technology’s potential.
Meanwhile, OXY’s chemical segment continues to impress after making up 19% of the revenue stream for 2022. For long-term investors, if Buffett’s stamp of approval wasn’t enough, there is an ambitious path among OXY's executives to follow. For traders, the stock has seen periods of notable volatility, although it only holds an implied volatility (IV) rank of 3.0.
The daily chart shows OXY challenging its February highs after a period of strong buying over the last week. This has put the 50-Day Simple Moving Average on course to overtake the longer-term 200-day simple moving average, a bullish signal known as a golden cross. That signal may attract further buying in the short term.
Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater
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