Singapore – Global oil markets are facing uncertainty due to escalating tensions between Israel and Iran, raising concerns about potential disruptions in a key oil-producing region. In Guyana, output projections are on the rise with new discoveries adding to the complexity of Chinese demand trends. The delicate balance between supply and demand, along with limited price flexibility and constrained inventories, is reminiscent of the initial days of the COVID-19 lockdowns.

The focus shifts to Occidental, a company leasing vast expanses in the Permian basin with hopes of efficiently extracting oil. Initially overlooked due to uncertain production levels and selling prices, Occidental’s stock price has seen a significant climb, sparking curiosity with the involvement of Berkshire Hathaway and comments from its Chairman. However, concerns linger regarding peak global oil demand, short-term price fluctuations, and the overall uncertainty surrounding oil recovery efforts.

Despite these uncertainties, revisiting the opportunity with Occidental raises questions about the timing of investments and the potential for long-term growth in the energy sector. Short-term trading of oil stocks may seem futile, leading to a focus on fundamental value analysis rather than chart-based speculation.

Occidental’s enterprise value suggests close alignment with fair value, considering its significant holdings in the Permian basin. The company’s potential for growth is intertwined with factors like production output, realized prices, and operating costs, which could impact value estimates significantly.

Looking ahead, additional investments in new oil production capacity become necessary to meet global demand. While various projects boast breakeven costs below $50, undersupply concerns could push mid-cycle oil prices to approximately $70 per barrel. Forecasts predict a rise in oil prices due to a shortage in conventional production capacities, although unexpected shifts in demand could alter the landscape.

The Permian basin holds a strategic advantage in controlling global oil prices, with shale producers like Occidental playing a vital role in influencing mid-cycle prices. Shale oil business carries lower risk compared to conventional oil, offering flexibility in capital spending and margin safeguards under different market scenarios.

Occidental’s position as the largest holder of Permian acreage, particularly in the Delaware basin, presents both challenges and opportunities for future growth potential. Technological advancements, price appreciation, and production methods like Enhanced Oil Recovery stand out as key factors that could drive growth for Occidental in the coming years.

Investing in Occidental presents a balanced opportunity, with the potential for future growth hinging on various factors like technological advancements, market dynamics, and operational capabilities. While short-term volatility is expected in the oil sector, the long-term outlook for Occidental remains positive, provided the company continues to innovate and adapt to changing market conditions.