Occidental Petroleum Stock Jumps as Warren Buffett Resumes Purchases
Occidental Petroleum Stock Jumps as Warren Buffett Resumes Purchases
Is it a buying opportunity as the price hovers near multi-month lows?
Occidental Petroleum is offering a buying opportunity near multi-month lows.
Warren Buffett’s buying streak is attracting the interest of investors.
CrownRock acquisition remains delayed amid Federal interference.
Occidental Petroleum (OXY) rose 1.5% through morning trading on Tuesday, June 18, as crude oil prices advanced above its May trading range, surpassing the 80 handle.
Crude oil prices have benefited from talks from the Organization of the Petroleum Exporting Countries (OPEC), with the cartel leaning toward scaling back production cuts, along with hopes for a pickup in demand during the summer driving season in the Northern Hemisphere.
Because OXY’s operations are concentrated in the upstream market, which benefits most immediately from higher oil prices by improving margins, their business could benefit bigly if prices remain near those levels.
Warren Buffett buying spree
Warren Buffet’s Berkshire Hathaway (BRK/A) started buying Occidental on June 5, with subsequent purchases on June 6, 7, 10, 11, 12, 13, 14 and 17, according to documents filed with the Securities and Exchange Commission (SEC).
The purchase was made at an average weighted price from as low as 59.5893 to 60.4253 over the eight-day time frame. In total, it brought Berkshire’s share of OXY to 255,281,524 shares, not including preferred equity.
Berkshire holds warrants to purchase 83,858,848 more shares of OXY common stock at an adjusted exercise price of 59.624. That puts those warrants back in-the-money (ITM) with OXY at 60.88, with an intrinsic value of $105 million.
Buffett likely won’t exercise those warrants in full anytime soon, and he has previously stated that he isn’t aiming to take control of the company. Meanwhile, Berkshire nets an approximate $3.7 million a year moving forward based on OXY’s 1.44% dividend yield.
CrownRock acquisition remains on hold
Meanwhile, OXY’s planned acquisition of CrownRock remains delayed as the company works through a request from the Federal Trade Commission (FTC), which has also delayed its plan to slow its buyback program—intended to help raise capital for the purchase. CEO Vicki Hollub previously stated she hopes for the deal to close in the second half of this year.
Trading OXY
OXY is trading with a relatively low implied volatility, currently holding an implied volatility rank (IVR) of only 17.7. This makes debit options strategies more attractive vs. credit strategies. For those wanting to get long with Mr. Buffet, a long call vertical is one option to gain exposure and potentially benefit from an expansion in volatility as well.
Technically, OXY is moving off its recent base it set around the 59 handle through the first half of June. That base formed after a downtrend that occurred alongside an oil market selloff. The 200-day simple moving average (SMA) is the next test for prices, which could come in the next couple of days if prices continue to rise.
Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater
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