Occidental Petroleum (NYSE: OXY) stock price is falling apart. It has crashed in the last four consecutive weeks, moving to its lowest level since April 2022. After peaking at $70.73 earlier this year, Occidental has dropped by more than 26% to trade at $52, giving it a market cap of over $47 billion.
Warren Buffett’s favorite energy company
Occidental Petroleum is a well-known energy company because, over the years, it has become Warren Buffett’s favorite energy company.
Data by Yahoo Finance shows that Berkshire Hathaway has accumulated over 255 million shares worth over $13.28 billion. His position accounts for about 28% of the entire company and is much higher than Dodge & Cox, the second-biggest OXY holder, which owns over 78 million shares.
The other top holders of Occidental are asset management companies like Vanguard, State Street, Blackrock, FMR, and Geode Capital Management.
Warren Buffett’s stake is notable for two main reasons. First, Buffett has become the most successful investor of all time, with Berkshire becoming the first financial services company to attain a market cap of over $1 trillion. Many investors tend to invest in companies that Warren Buffett invests in.
Second, it is the biggest energy company in his portfolio, with Chevron being the other one. Recently, Buffett has been reducing his stake in Chevron, selling over 3% in the last quarter.
Why OXY shares are plunging
For starters, Occidental Petroleum is one of the biggest oil companies in the United States. It operates its business in three key segments, oil and gas, chemical and midstream, and marketing.
In its oil and gas segment, the company explores and develops oil and condensate while its chemicals business is involved in manufacturing basic chemicals and vinyls. The marketing segment is involved in transporting and optimizes oil operations.
The current form of Occidental was formed in 2019 when the company acquired Anardako Petroleum after winning a bidding war with Chevron. The deal was worth $55 billion, which is higher than the current combined market cap of $47 billion. It was partially funded by a $10 billion loan from Berkshire.
The Occidental stock price is crashing because of the ongoing crude oil plunge that could get even worse.
West Texas Intermediate (WTI) crashed to $67, down by over 20% from its highest level in 2023 and is hovering at its lowest point in over 14 months. Brent, the global benchmark, fell to $70.65, much lower than the year-to-date high of $92.13. The two benchmarks have formed a death cross pattern, pointing to more downside.
The main catalyst for this sell-off is the return of Libyan oil, weakening global demand, and expected oversupply.
Most non-OPEC members are expected to continue boosting output in the foreseeable future to take advantage of OPEC+ cuts. The US has moved to producing over 13 million barrels per day while Canada is expected to near 6 million barrels per day.
Therefore, analysts expect that the oil industry will move to a supply surplus, which will lead to weaker prices in the near term.
Occidental, like other energy companies, do well when oil and natural gas prices are at an elevated level. This explains why its annual revenue jumped from over $29 billion in 2021 to over $36 billion in 2022. Its annual profits peaked at over $13 billion in 2022.
Analysts believe that crude oil prices may continue falling, with those at Citigroup and Bank of America expecting it to drop to $60 in the coming weeks.
The most recent financial results showed that its oil and gas division had a pre-tax profit of over $1.6 billion in the second quarter, higher than the $1.2 billion it made in the first quarter. Its average oil selling price was $80 a barrel, meaning that its revenue will drop if prices remain this low.
Its chemicals division had a pre-tax income of $296 million while its midstream and marketing had over $116 million. Analyts expect that its third-quarter revenue will be $7.52 billion, up from $7.21 billion in 2023. For the year, analysts believe that its revenue will be $28.31 billion.
Occidental stock price analysis
Turning to the daily chart, we see that the OXY stock price has been in a strong sell-off in the past few months. It crashed from a high of $70.73 in May to about $50. Most recently, it dropped below the key support at $54.75, its lowest point in December last year. It also formed a death cross pattern as the 200-day and 50-day moving averages crossed each other.
Occidental has also become highly oversold, with the Relative Strength Index (RSI) moving to 24 while the Stochastic Oscillator has moved to near zero. Therefore, there is a likelihood that the stock will have a dead cat bounce and retest the support at $54.75 before resuming the downtrend.
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