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Sunday, February 5, 2023

It’s Time to Give Up on Occidental Petroleum

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Occidental Petroleum (NYSE:OXY) continues to follow the basic track of other oil stocks. In early June, I could understand investors taking a flyer on OXY stock. After all, initial concerns about the company’s liquidity appear to be unfounded.

A magnifying glass zooms in on the Occidental Petroleum (OXY) website.

Source: Pavel Kapysh / Shutterstock.com

And so, in some ways, it makes sense that the stock would bounce off 18-year lows.

Plus, oil stocks tend to move in rough tandem with their underlying commodity. But right now, it’s hard to create a scenario in which demand for oil significantly increases. And that’s why it’s time for investors to get serious about the real opportunity that exists with OXY stock.

Where’s the Demand?

John Navin wrote an article for Forbes that noted the discrepancy in price movement between oil and oil stocks. Specifically oil stocks started to decline even as the price of oil continued to go up. If oil is going up, but oil stocks are not, what does that say? It says to Navin that investors are sensing that oil prices are going to undergo a correction. I agree with that analysis.

And there are good reasons for that.

Cruise lines won’t be sailing until late fall. Green shoots in the airline industry have been mowed over by states pausing or reversing reopening plans.

Many individuals are still working from home. The great American road trip also looks to be taking a vacation this year. Live sports may or may not be able to get going, but there won’t be any fans in the stands to make those games a destination. Theme parks? Closed.

And let’s spin this forward. Harvard University has already announced that classes will be entirely virtual for the fall semester. Purdue University is requiring students to have a negative test for the virus before they come on campus. There is no consensus on whether primary and secondary schools will open in the fall. There sure looks like a lot less driving this fall.

So again I ask you, where’s the demand? Food and grocery delivery? Even Amazon (NASDAQ:AMZN) deliveries can’t make up for that much demand destruction.

Oh and don’t forget that the market is amply supplied, so it’s not like Occidental could drill its way out of this. But even if that was not the case, Occidental is too busy hoping the price of oil will stay high enough so it can sell some assets.

However, if after all that you feel that I’m being too pessimistic in my outlook, there are other reasons to be concerned about OXY stock.

Occidental Has Too Much Debt

Back in March, I wrote about the perilous state of OXY stock. Back then, Occidental’s CEO Vicki Hollub was saying that Occidental could break even if oil plunged into the low-$30 range. So with oil in the low-$40 range, it may seem like a great time to buy OXY stock.

However, in June, I did my best to discourage investors from falling for that trick. With the price of oil climbing, I sounded an alarm from the company’s CEO herself. To be as clear as I can, Hollub has said that paying down the debt from the company’s $40 billion Anadarko deal will be the company’s main priority. And with no dividend to speak of, there’s simply no reason to own the stock.

But who is buying?

Sure enough, I see Occidental on the list of the top 100 stocks on Robinhood. It’s becoming almost too easy to sleuth things like this out. But I think it’s important not to buy a false narrative on oil demand. There simply is no there, there.

Vote ‘No’ on OXY Stock

In addition to the daily novel coronavirus case count, the United States is at the beginning of the end of President Donald Trump’s four-year term. That means a presidential election is upon us in November. The bottom line is that there is no reason to think that oil prices will move higher in the short term. There’s simply too much uncertainty.

I know that at some point, oil will rally. Even with alternative energy becoming economically viable, the world will still need fossil fuels for some time. But if you must invest in oil stocks, there are far better options in the oil patch. It’s time to end the speculation and simply move on from OXY stock.

Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.

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