Occidental Petroleum Stock Forecast: Is OXY overbought?

Occidental Petroleum (OXY) rallied 9.5% on Thursday as oil broke back above $100 a barrel. WTI is now trading just above $104; Brent, just above $109. According to a new filing with the Securities & Exchange Commission (SEC), Warren Buffet's Berkshire Hathaway is at least partly responsible for the run-up in OXY stock price. The Oracle of Omaha bought another 18.1 million shares from Monday through Wednesday this week. The monthly chart Relative Strength Index, however, shows that OXY stock has just reached the overbought level of 70, a rare achievement in the past two decades.

Occidental Petroleum News: Berkshire now owns 14.6%

Significantly, Berkshire now owns about 14.6% of Occidental. Due to the ownership of millions of warrants, Berkshire will likely surpass 15% when all is said and done. This is a good sign for shareholders, and Berkshire has a tendency to hold positions for decades.

The International Energy Agency said that a 3 million barrel a day shorfall in oil may begin as soon as April as sanctions against Russian banks and a general reluctance to buy Russian oil by many buyers due to the latter's invasion of Ukraine begins to sink in and affect the industry. This would of course lead to higher prices. Morgan Stanley put out a forecast that Brent will reach $120 a barrel, rather than the prior forecast of $100, by the third quarter of 2022.

Short sellers have been targeting oil equities in recent weeks, especially after the price of oil shot up to $130 briefly last week. Shares of US refiners averaged about 7.3% short as of the end of February. Oil and gas drilling companies averaged 5.1% short.

Occidental has signed a four-year deal with Airbus to sell the airplane manufacturer carbon offset credits. Airbus will buy 100,000 credits each year and pay upfront, which will allow Occidental to build the world's largest direct air capture facility to remove carbon dioxide from the air and bury it underground. Occidental will begin construction on the facility in the second half of this year, and construction is expected to last about two years. Once finished the facility is designed to remove 1 million tonnes of carbon dioxide from the air each year, which would be more than 100 times larger than the 19 existing direct air capture facilities in operation.

Occidental Petroleum Forecast: Is OXY overbought?

Glancing at the monthly chart below, readers should note that OXY stock has already reached a reading of 70 on the RSI. This overbought level has not been reached since April 2011. At that time the RSI peaked just above 74 and a sell-off ensued.

Could this pattern happen again? It could, but besides the RSI,  two nearby resistance lines provide OXY stock with a hard road ahead. $58.22 and $63.66 both have several points of historical importance for the OXY share price. It is notable that despite its 9.5% run on Thursday, OXY could not overtake the first of these resistance levels. Above there OXY will take a swing at $78.09, which acted as resistance in the spring and summer of 2016. OXY will more than likely get stuck in the thicket of profit-taking between $58.22 and $63.66. 

OXY 1-month chart