Buffett, is he going to fail this time?

Recently, international oil prices have continued to fall, and Buffett, who is heavily invested in Occidental Petroleum, may face a situation of being "trapped".

Barron's believes that Berkshire Hathaway currently holds 255 million shares of Occidental Petroleum, which is in a loss position, valued at approximately $13 billion.

This investment is one of the largest equity investments made by Berkshire in recent years. Since the beginning of 2022, Buffett's Berkshire Hathaway has been aggressively buying Occidental Petroleum, gradually increasing its stake in the company by 28%. According to data from Buffett Watch, Occidental Petroleum is the sixth largest holding in Berkshire's overall investment portfolio.

However, with the overall decline in the crude oil market, Occidental Petroleum's stock price has fallen by 15% so far this year, currently trading at $50.88, and recently hit a 52-week low. Barron's analysis suggests that the current stock price of $50.88 has fallen below Buffett's average holding cost of about $54. It stated:

According to filings submitted by Occidental Petroleum to the U.S. Securities and Exchange Commission, Berkshire has purchased about 90% of the company at a price of nearly $56 per share since March 2022, taking into account the holdings acquired at a slightly lower cost earlier, the overall average cost of the holdings is about $54 per share.

Although Berkshire still holds $8.5 billion in preferred shares that yield an 8% dividend annually, and has around 84 million warrants for Occidental Petroleum shares, the exercise price of these warrants is close to $60 per share, which is currently not profitable. Since June this year, Berkshire has suspended further purchases of Occidental Petroleum shares.

Reports indicate that several reasons have contributed to Occidental Petroleum's weak performance and lagging stock price compared to its peers this year. Firstly, energy stocks are unpopular due to the fall in oil prices. The price of West Texas Intermediate crude oil on the New York Mercantile Exchange recently fell to a new low for the year at $66.35 per barrel, while natural gas prices have also been soft, hovering around $2.25 per million British thermal units.

Additionally, Occidental Petroleum's high financial leverage puts it at a disadvantage compared to its peers during periods of soft commodity prices, and its ability to return value to shareholders is inferior to industry giants like ExxonMobil and Chevron.

Nevertheless, Occidental Petroleum is still seen as a "small giant" in the energy industry, with extensive chemical and pipeline businesses, and is the largest oil producer in the Permian Basin of Texas