Warren Buffett’s Favorite Oil Stock, Occidental Petroleum: A Long-Term Investment Opportunity
Warren Buffett, the legendary investor, has built Berkshire Hathaway (NYSE: BRK-A and BRK-B) into a $1 trillion powerhouse over the past 60 years. His average annual return of approximately 20% has more than doubled the S&P 500’s 10% performance since 1965. An initial $1,000 investment in Berkshire back then would be worth over $40 million today, while the same investment in the S&P 500 would be worth only $320,000.
One of Buffett’s favorite investments is Occidental Petroleum (NYSE: OXY), the largest independent producer in the Permian Basin. Berkshire holds a massive 28.2% stake in Occidental, equivalent to 265 million shares. However, with OXY trading near its 52-week low of $45.17, down from a high of $71.18, investors may be wondering if this is a steal or a risky bet.
Why Occidental Is Buffett’s Favorite Oil Stock
Buffett has been gradually increasing his stake in Occidental since 2019. He was drawn to the company’s low-cost oil production in the Permian Basin, its $18.5 billion acquisition of CrownRock in 2024, and its focus on carbon capture technology. The STRATOS project, set to launch later in 2025, is expected to tap into a potential $100 billion market by 2030.
Occidental’s CEO, Vicki Hollub, has earned Buffett’s trust with her commitment to efficiency, paying down $4.5 billion in debt after the CrownRock purchase, and boosting dividends. The company hiked its dividend 22% in 2024 and increased it another 9% recently to $0.24 per share.
Risks Facing Occidental Petroleum
Despite its promising future, Occidental faces several risks. Oil prices are volatile, and West Texas Intermediate crude currently sits below $69 a barrel due to oversupply fears and a slowing global economy. Occidental’s fourth-quarter earnings showed a decline in revenue and tightened margins, but the company still outperformed expectations.
Additionally, President Trump’s tariffs could spark a trade war, raising costs and cutting demand if China or Europe retaliate. The CrownRock deal added $10 billion in debt, bringing Occidental’s total debt to $25 billion. If oil prices fall further, Occidental’s cash flow could be strained, potentially leading to dividend cuts, despite the current unlikely probability.
Moreover, the shift to renewable energy poses a long-term threat, as some analysts suggest oil demand might peak by 2035. However, fear-mongering around peak oil has been ongoing for years.
Impact on Individuals and the World
For individual investors, the decision to buy Occidental Petroleum at its 52-week low depends on their risk tolerance and investment horizon. Buffett’s stake and Occidental’s Permian strength make it an attractive option, especially with the potential for an oil price rebound. However, volatile oil prices, high debt, and energy transitions could negatively impact the stock if things sour.
On a global scale, the oil industry’s transition to cleaner energy sources is inevitable. Companies like Occidental that can adapt and innovate, such as through carbon capture technology, will likely remain competitive in the long run. However, the transition may lead to short-term volatility in the oil market and potential job losses in the industry.
Conclusion
Warren Buffett’s investment in Occidental Petroleum highlights the potential of this oil giant as a long-term investment opportunity. With its low-cost oil production, focus on innovation, and efficient management, Occidental is well-positioned to weather the volatile oil market and adapt to the energy transition. However, investors should be aware of the risks, including volatile oil prices, high debt, and energy transitions, and have a long-term investment horizon to maximize their potential returns.
As the world moves towards cleaner energy sources, the oil industry will face challenges. Companies that can adapt and innovate, like Occidental, will remain competitive and contribute to a more sustainable energy future.
