What happened
Oil stocks opened the week on a positive note, with some of the notable names clocking decent gains earlier today. At their highest points in trading Monday, upstream oil stocks Occidental Petroleum (OXY 5.39%) and ExxonMobil (XOM 3.61%) were up 3.4% and 2.8%, respectively, while shares of midstream giant Kinder Morgan (KMI +0.74%) had gained 2.5%.
While the rally in crude oil prices drove most oil stocks higher, Occidental Petroleum stood out thanks to one man: Warren Buffett.
So what
Oil prices inched higher for the third consecutive day, with both West Texas Intermediate and Brent crude clocking nearly 2% gains each early Monday to hit their highest levels in September yet.
While the U.S. dollar dropped against major currencies ahead of inflation data coming up on Tuesday, apprehensions over Iran's plans to revive its 2015 nuclear deal further lifted oil prices higher. Iran's success in reviving the deal would mean more oil (Iranian oil) hitting the markets, which is feared to ease supply and hurt oil prices. However, with several European nations now turning skeptical about Iran's plans, the oil markets got some relief on Monday.
Upstream oil stocks typically rise with oil prices as oil exploration and production companies are expected to earn more from the oil they sell in a higher oil-price environment. That also lifts expectations from the top dividend-paying oil stocks.
NYSE: XOM
Key Data Points
One of them is ExxonMobil, which has increased dividends for 39 straight years now. Also, the oil giant's low breakeven oil price of $41 per barrel means bigger profits as oil prices rise. That's what investors expect to see from ExxonMobil's next quarterly earnings report coming up in October, which is why some are buying the oil stock in September while they still can.
Meanwhile, with natural gas prices surging nearly 4.8% Monday as of this writing, investor interest in gas pipeline giant Kinder Morgan also picked up the slack. But midstream stocks like Kinder Morgan don't often rally as much as upstream stocks when oil and gas prices rise, because they primarily generate income and cash flows under fixed-price, long-term contracts that are less prone to fluctuations in prices of fossil fuels. Kinder Morgan, however, is a solid dividend stock yielding 6.1% currently.
Occidental Petroleum also pays a dividend and has given hefty payout hikes to shareholders this year as its cash flows zoomed. The oil major has significantly reduced debt and boosted shareholder returns in recent months, and in doing so, attracted the attention of none other than popular investor Warren Buffett.
NYSE: OXY
Key Data Points
Buffett continues to load up on Occidental stock. The latest regulatory filing from Buffett's Berkshire Hathaway filed on Friday reveals its stake in Occidental stock is up significantly from the 20% it last reported. Buffett recently won regulatory approval to buy up to a 50% stake in Occidental Petroleum, and he's evidently using the win to his advantage.
Now what
While the stock prices of ExxonMobil and Kinder Morgan could oscillate with oil and gas prices, the rally in Occidental Petroleum stock is unlikely to fade anytime soon
Occidental is the top-performing oil stock so far this year, having gained a staggering 131% year to date as of this writing. The stock's unstoppable rally even compelled Citi's Scott Gruber to downgrade its rating this morning from buy to neutral with a price target of $67 per share, as the analyst sees limited upside potential in Occidental now.
Yet it's hard to dampen investor excitement when a legendary investor like Buffett buys a stock hand over fist.
