Why Occidental Petroleum Stock Fell Today Despite an Analyst Upgrade

What happened

Occidental Petroleum (OXY 0.50%) stock slipped today and was down about 3% as of 1:50 p.m. ET despite an analyst raising the oil stock's price target this morning and counting Occidental as one of the biggest oil and gas companies that could benefit under the Inflation Reduction Act (IRA).

So what

Analyst Devin McDermott from Morgan Stanley boosted Occidental Petroleum stock's price target to $76 per share from $70 a share today, representing almost 11% upside from the stock's Friday closing price. That may not sound like a big upside, but don't forget that Occidental shares have already more than doubled so far this year.

McDermott's conviction rests on the IRA which was recently signed into law by President Joe Biden. The Act has outlined an investment of $369 billion in energy security and climate change, and includes funding for carbon capture, utilization, and storage (CCUS) projects.

Occidental is investing heavily in CCUS through its subsidiary, Oxy Low Carbon Ventures. Among other things, it is planning to build a large direct air capture plant in the Permian Basin that could cost up to $1 billion. McDermott identified Occidental among the few oil and gas companies that are now better positioned to "profitably transition" to a low-carbon future thanks to the IRA.

Why did Occidental stock then fall today? The weakness in the broader markets, especially in oil and gas stocks, is largely to blame.

Now what

Although crude oil prices rallied sharply on Monday after the OPEC+ decided to trim oil production, the optimism didn't last long as the oil markets took stock of the ongoing political crisis in Iraq and fresh COVID-19 lockdown restrictions in China, among other things. As a result, oil prices cooled off today.

Natural gas prices, meanwhile, crumbled almost 7.4% Tuesday as of this writing, after the Energy Information Administration's latest report revealed a higher inventory build. To make matters worse, an outage at a major liquified natural gas export terminal that otherwise consumes a lot of gas is expected to last longer than previously expected.

The drop in oil and gas prices drove most oil and gas stocks, including Occidental Petroleum, lower on Tuesday. Occidental, otherwise, is on solid footing, and with legendary investor Warren Buffett placing massive bets on the oil stock, it could even rebound faster than other oil stocks after every dip.