The past two years have been tumultuous for Occidental Petroleum Corporation (NYSE:OXY). At just about this time in 2020, OXY stock had plummeted 75% over the course of several weeks. A dramatic drop in oil prices, an ill-timed oil price disagreement between Russia and Saudi Arabia, high debt, the start of a global pandemic and a stock market crash all played a role. There were soon concerns Occidental might face bankruptcy.
Now, OXY stock is up 102.5% so far in 2022. Clearly, a lot can change in just two years.
Oil prices bottomed out around the $11 range in spring 2020 (oil futures actually went negative for a time that year), but they recovered. With the Russian invasion of Ukraine and subsequent sanctions levied on Russian oil, prices have shot up in 2022. They currently sit around $115 per barrel.
While no one wants war, OXY stock has benefitted from the sanctions. Eventually this situation will resolve itself, though, and then climate concerns are going to have oil in the crosshairs once again. That’s why Occidental’s latest announcement is good news for investors: the first customer for its net-zero oil.
Occidental’s Net-Zero Oil Has a Customer
On March 22, Occidental announced that it has a customer for its net-zero oil offering. South Korea’s global energy broker SK Trading International has signed an agreement to buy up to 200,000 barrels of net-zero oil per year from Occidental for the next five years. The move is part of SK Trading’s “Carbon to Green” strategy.
Market reaction to the news was muted, with OXY stock closing down slightly. Traders were more focused on oil prices, which had slipped slightly.
What Is Net-Zero Oil and Why Should Occidental Investors Care?
Right now, net-zero oil isn’t something that investors looking for high performance oil and gas stocks are particularly interested in. They’re caught up in the opportunity offered by spiraling oil prices. That’s fine for the short term, but I’m looking at stocks that can deliver long-term growth.
That’s why Occidental’s net-zero oil is intriguing. The company has a subsidiary called 1PointFive. The name reflects the goal of curbing global temperature rise to 1.5°C by 2050. The business 1PointFive is in happens to be decarbonization. This includes direct-to-air capture (DAC), geologic sequestration and air-to-fuel technologies. The point of all these efforts is to make oil carbon neutral (or net-zero) by removing carbon from the atmosphere that equals the carbon that would be generated by burning the oil.
It’s not physically removing the carbon from the oil, although it can also reduce the carbon emitted as part of the oil production process. But for companies that will be increasingly under pressure to reduce their CO2 emissions, Occidental’s net-zero oil will be a win. Until they eventually go electric (if possible), using net-zero oil will keep them in compliance using their existing equipment.
Long-term, net-zero oil could be very important for OXY stock growth.
Bottom Line on OXY Stock
As I said earlier, two years can make a huge difference in the outlook on a stock. At this time in 2020, you probably wouldn’t have wanted to touch OXY stock — or shares in any oil and gas company — with a ten foot pole. Even in 2021, it was a bit iffy. The company had survived the worst of the pandemic and oil price war, but U.S. energy policy was leaning heavily toward an electric future that would would see oil phased out sooner rather than later.
However, later 2021 proved a gut check. With global economies finally ramping back up, demand for fossil fuels quickly accelerated to pre-pandemic levels, surpassing them early this year. It became clear the oil and gas industry was far from dead. War in Ukraine showed just how tight global supply actually is. Oil is at 10-year highs, with projections it could eventually hit $200 a barrel for the foreseeable future, meaning oil stocks are hot. Occidental shareholders are celebrating good times.
And when stricter environmental regulation eventually comes for the oil industry, Occidental’s investment in net-zero oil will pay off. OXY stock currently earns an “A” rating in Portfolio Grader. Currently trading in the $59 range, OXY is off its 2022 high by about 7%, offering an opportunity to buy shares before the 2022 surge resumes.
Originally published on InvestorPlace.com
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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