Why Occidental Petroleum Stock Jumped on Monday
Key Points
Flare-ups in the Middle East often push oil prices upward.
Since price is always a factor in Occidental's performance, investors bought into the stock.
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The price of oil is subject to many factors, and it can rise precipitously in times of emergency or stress. The start of the war with Iran is one of those times; with concern growing that the conflict will lead to a leap in prices, investors cautiously bought into oil stocks on Monday. Among the beneficiaries of this trend was veteran black gold specialist Occidental Petroleum (NYSE: OXY), whose shares rose by more than 2% during that trading session.
A war footing
It's important to note here that, as of late afternoon Monday, no serious damage to oil production capacity in Iran -- or elsewhere in its region -- has yet been reported.
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That said, the potential for that to happen is significant, and growing each day the conflict stretches out. And it's not only production that could be hampered amid the fighting -- it's very possible the Straits of Hormuz will become a bottleneck for oil supplies, for example, or the supply might be restricted in a variety of ways.
On Sunday, in something of a surprise move, the Organization of the Petroleum Exporting Countries (OPEC) announced an upcoming increase in its collective oil production. This caught some industry participants and analysts off guard, though it makes sense as a measure that could dampen any high price jumps in the commodity linked to the war.
Rising tide
In a geopolitical situation, it's very likely prices will rise at least somewhat; with Occidental's 2% lift -- similar to the gains other oil majors saw on Monday -- it seems the market as a whole doesn't expect a precipitous advance. Either way, any increases will filter down into the fundamentals of incumbents like Occidental, and we can expect that to continue if the conflict intensifies.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
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