As traders stare at the charts to end the first week of March, they’re noticing that Occidental Petroleum (NYSE:OXY) stock has been kicking posterior and taking names.
It’s no surprise. Thanks to a certain situation, the modern global order has changed, cynically bolstering the case for OXY stock.
Due to sensitivity protocols and the fact that I’ve been discussing the matter across various platforms ad nauseum, let’s just call it, you know, “the thing.”
OXY Stock Pre-Thing and Post-Thing
Prior to the thing, OXY stock was a tough investment to believe in. Following certain geopolitical events, the price of energy plummeted. In turn, Occidental, which was had consistently posted revenue of around $20 billion, saw its top line crater to $12.5 billion in 2015 and then to nearly $10 billion in 2016.
As well, after posting multiple consecutive years of positive net income, Occidental posted sharp net losses in 2015, followed by a lesser magnitude of red ink in 2016. Circumstances really didn’t look too hot for OXY stock, which saw many folks abandon ship. Add in the worrying impact of the U.S.-China trade war during the Trump administration and you seemingly had a perfect storm brewing.
Then the coronavirus happened – you know, the other thing.
Suddenly, nobody wanted to be out and about and honestly, who could blame them? There was a strange thing going on – and it wasn’t just an exotic foreign thing either. It was right here in the U.S. However, when the Federal Highway Administration confirmed that vehicle miles traveled dropped nearly 42% between February 2020 and April 2020, it magnified the dilemma for OXY stock.
Of course, it turned out that Americans didn’t like being cooped up at home forever, which naturally lifted oil prices. Then came an inflationary surge, which was brought on by unprecedented fiscal and monetary stimulus programs. They arguably saved the country but what a cost!
Still, you could make the case that eventually, the oil paradigm would normalize. But now that the thing happened, I’m not seeing an easy way out of this circumstance.
It just comes down to hard numbers.
Harsh Realities
First, let’s address the obvious for OXY stock. The country that did the thing is a major supplier of critical commodities. According to a Reuters report, this country produces 10% of global oil and supplies 40% of Europe’s gas. It also, as a sidenote, is the world’s largest grains and fertilizers exporter.
In response to the thing, the U.S. imposed severe sanctions on the country and the entities responsible. As the thing worsened, more countries added their names to the potentially crippling sanctions and the magnitude of the penalty increased sharply.
Now, a legitimate fear exists that the thing could spiral out of control (as if it didn’t already spiral out of control). While any oil-exporting country would be hurting itself by restricting supplies, in the near term, such an action occurring seems like a foregone conclusion.
Whether for reasons right or wrong, no country wants to be the subject of sanctions. Therefore, retaliation is coming.
Just the threat of that is enough to get OXY stock moving higher. But here’s another point to think about. The thing has many countries across the globe questioning excessive energy dependence on nations with questionable human rights records. Therefore, a concerted effort to invest in alternative energy sources will rise as a result.
However, the fruits of these investments will take time. Yes, eventually, you would imagine that the paradigm would again turn negatively for OXY stock. But in the meantime, Occidental Petroleum and the underlying industry is extraordinarily relevant.
As the Brookings Institution pointed out, fossil fuels are incredibly difficult to quit in large part because of their high energy density. Thus, it’s easier said than done to pivot to alternative energy strategies.
Uncharted Territory
Among the biggest news items dominating headlines are bank runs. In response to the thing, a certain currency is suffering from severe devaluation.
But how sure are we that western-backed sanctions won’t boomerang back to us? Disconnecting a key power from the global economy is not good for the affected nation, obviously. But it could have a severe ripple effect everywhere due to the interconnectedness of everything.
For me, the scenarios that analysts conjure up seem to imply toward one direction: declining supply of critical commodities. In that case, OXY stock seems to have a long upside pathway, thing or no thing.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
