2025-04-10T17:22:02.000Z

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Shares of Occidental Petroleum (NYSE: OXY) experienced a steep decline today, trading 10% lower by 12:20 p.m. ET. This surprising downturn came on the heels of the company reporting an increase in average prices for both oil and gas during the first quarter compared to the previous quarter, which typically would signify good news for both the company and its investors.

So what exactly led to this unfavorable market reaction? There are three critical factors at play that investors should consider.

First, despite Occidental Petroleum's notable increase in average realized prices, there has been a significant drop in oil prices overall. The company's worldwide average realized price for crude oil reached $71.07 per barrel in the first quarter, a respectable increase from $69.73 per barrel in the fourth quarter. Moreover, the average realized prices for natural gas liquids soared almost 19% sequentially, and the average domestic natural gas price skyrocketed nearly 92% to $2.42 per thousand cubic feet. However, these gains may not translate into enhanced revenue unless Occidental has sufficiently ramped up its production during this period, which, unfortunately, seems unlikely due to several factors.

The harsh winter, plant outages, and subdued drilling activities throughout the fourth quarter have likely contributed to lower production levels. Thus, even with higher prices, the benefits might not reach the companys balance sheets as anticipated.

Second, while the prices have improved compared to the fourth quarter, a year-over-year comparison does not look favorable for Occidental. In the same quarter last year, the company realized an average of $76.04 per barrel for crude oil, indicating a significant decline in year-over-year performance.

Lastly, and perhaps the most critical factor leading to today's crash, are the overall declining oil prices. This morning, crude oil prices dropped by more than 3%, with West Texas Intermediate (WTI) sinking below the $60 mark. The context for this decline is the escalating tariff war between the United States and China, which is causing uncertainty in the global oil market.

This situation raises a key question: Is Occidental Petroleum stock a good buy now? While the drop in oil prices negatively impacts nearly all players in the oil and gas sector, it poses an even greater challenge for Occidental Petroleum due to its substantial debt burden. The company had primarily financed its $12 billion CrownRock acquisition through debt last year, which is one of the principal reasons Occidentals stock fell by 17% in 2024.

On a more positive note, Occidental has already managed to repay $4.5 billion of its debt within months of the acquisition and has plans to further reduce this debt by 2025, utilizing its cash flows and proceeds acquired from the sale of non-core assets. Additionally, the Permian assets from CrownRock and Occidental's non-oil businesses are expected to continue generating value in the long term.

While the immediate future may present some turbulence, many analysts, including those from Warren Buffett's investment team, believe this oil stock has significant long-term potential.

For those contemplating whether to invest $1,000 in Occidental Petroleum at this juncture, it might be prudent to exercise caution. The Motley Fool Stock Advisor analyst team has recently pinpointed their selections for the 10 best stocks to buy right now, and notably, Occidental Petroleum did not make the cut. Their recommendations are believed to offer substantial returns in the coming years.