Subject: Re: considering coat tailing OXY
The price of OXY has been all over the place with their financial difficulties of the past, but if you plot the stock price vs oil price for the last two years of relative corporate stability, you'll see a very close match. I think this will continue going forward. If you think long term oil prices will have an upward trend, the stock would be a good buy, but then if you really know the future, oil futures would be an even better buy.

I worked for some of the the biggest oil companies who could afford the finest analysts and had the best data available. The were often wrong in their oil price projections. Very often very wrong.

Really good observation.

I've also been through the mill on that. XOM gave up on forecasting oil prices a long time ago.

Best I can guess, they now plan based on $60 (real) for Brent crude to develop projects. They test against $40/bbl and $80/bbl as sensitivity cases. They test their outlook versus such case - probably also assuming cyclic behavior for long term projects. Most big O&G projects operate through decades. Unconventional production from the Permian and other tight oil projects have more control to adjust to ups and downs on oil prices.

But XOM also insists that they have a competitive advantage against all cases. They want to be the lowest cost producer in all cases. That's who wins in a competitive market. They can't beat Saudi and Russia, but they can beat their competitors outside OPEC. And OPEC suppliers have the same need for cash as Saudi and Russia.

XOM recently commented that 90% of their upstream investments in the 2024-27 period yielded a 10% return at $35 (real - inflation adjusted) oil prices. But they still have older, conventional, operations. Their sensitivity depends upon their age - i.e. how long does it take to recover the up-front investments? OTOH, their downstream businesses benefit from lower oil prices. (See below.)

So I would ask potential OXY investors to consider their competitive position against similar outlooks. Maybe test versus against Exxon and Marathon?

OXY recently said that they had a "breakeven" price now of $40 (Brent or WTI) crude prices. I assume that covers their capex (and dividends?) at such prices. So maybe have good downside protection to cyclic downturns - but not to profits?

OXY does not have a downstream refining and petrochemicals presence. Their chemicals business is based on chlorine chemistry so it is largely independent of oil prices. Ditto is their mid-stream business which is based on throughput at a long term price. So a relatively small part of their business is somewhat independent of oil prices. But refining and petrochemicals do better (lower feedstock costs) for majors like Exxon and Chevron when oil prices drop. So that is somewhat of a buffer against oil price swings.

OXY is probably more subject to oil price swings than the majors. Buffett himself said it was a bet on oil prices.

That's a very complex world - that nobody really understands or can forecast. My view is that the economic needs for cash for Saudi and Russia are probably the biggest drivers of prices. But geopolitics also enter into their decisions. They can't control demand, but they can really influence supply. Offsetting that is that non-OPEC suppliers benefit when Saudi and Russia cut back production to keep prices up.

My thought is to not just follow Buffett and Guru's on OXY but also test them against alternate investments - both larger and smaller than OXY.