Berkshire Hathaway's big oil bet looks beaten down, but a rebound may be brewing
Predictions about the “death of the oil industry” may be premature, even as companies like Occidental Petroleum (OXY) continue to lag the broader market.
One of the biggest arguments against writing the stock off isn’t just economic.
It’s the fact that Occidental remains one of Berkshire Hathaway’s largest holdings, suggesting Warren Buffett’s firm sees long-term value others might be missing.
Occidental has significantly underperformed this year, falling about 16% and sliding further over the past 12 months.
Its decline has tracked a weak global oil-price environment, which directly pressures revenue and profits for energy producers. Softer demand forecasts and abundant supply have further dampened investor appetite for oil-and-gas stocks.
The company is also weighed down by substantial debt, much of which is tied to past acquisitions, and this remains a concern for investors. While recent quarterly financial results were better than expectations, they showed year-over-year declines in revenue and income.
Even so, Berkshire Hathaway remains a committed backer. Buffett’s company holds around 265 million shares of Occidental, a stake that ranks among Berkshire’s largest positions and signals confidence in the oil giant’s long-term prospects.
Those long-term prospects were underscored in a recent Morningstar report, which named OXY one of the best and cheapest energy stocks based on the gap between its market price and underlying fundamentals.
Oil price recovery will be slow, but Occidental is lining up its business
Recent pressure on oil prices, which is felt directly by Occidental, is expected to persist well into 2026.
A recent Goldman Sachs forecast projects Brent crude averaging $56 a barrel and West Texas Intermediate (WTI) averaging $52 a barrel next year, as a global surge in production continues to weigh on prices. Both figures are below current oil prices.
The incoming supply surge “mostly results from long-cycle projects that saw Final Investment Decisions (FIDs) just before the pandemic, got delayed during Covid, and are all coming online,” Goldman said.
The Organization of the Petroleum Exporting Countries (OPEC) has also indicated that global supply is likely to match demand next year, a scenario that could keep additional downward pressure on prices.
Even so, Morningstar notes that Occidental is better positioned to weather a prolonged downturn thanks to the substantial debt reduction and balance-sheet repair the company has achieved since the pandemic.
This could leave Occidental well-positioned for 2027, when Goldman Sachs expects oil prices to begin recovering, eventually reaching long-term targets of $80 for Brent and $76 for WTI by 2028.