Occidental Petroleum and Diamondback Energy may be poised to rally after U.S. crude oil prices broke above a key resistance level on Friday, according to the chief market strategist at Miller Tabak. U.S. crude oil settled at $78.01 a barrel on Friday to close out its best week since Sept. 1 thanks to robust U.S. growth — as evidenced by a faster-than-expected fourth quarter GDP print — and China promising more spending to boost its economy. West Texas Intermediate futures breaking above the 200-day moving average of $77.64 should confirm that crude oil prices have made a meaningful change to the upside, Miller Tabak’s Matt Maley told CNBC. “That paves the way for higher prices,” said Bob Yawger, managing director and energy futures strategist at Mizuho Americas. Yawger said WTI not only topping the 200-day moving average but settling above that level is “definitely much more bullish” for crude futures prices. Key test next week The energy sector has been lagging oil prices over the past four to six weeks and confirmation now that crude is shifting to the upside should help the stocks “play catch up,” Maley said. A key test will be whether WTI next week stays above the 200-day moving average that had been acting as price chart resistance, the strategist said. Conversely, however, Maley noted that it is also critical to monitor the 200-week moving average of $71.58 a barrel for U.S. crude as a support level for prices. “If crude oil rolls back over, breaks below that level — that’s going to tell you that I’m wrong. It’s not working,” the Miller Tabak strategist said. Occidental and Diamondback, in particular, may be poised to bounce because they are highly leveraged to the price of oil, Maley said. Occidental is down 2.2% this year while Diamondback is up less than 1%. The United States Oil ETF , a decent proxy for crude, is almost 10% higher in 2024. Occidental could return to its 2022 highs of between $75 and $80, Maley said. That would imply upside of as much as 37% from Occidental’s close Friday of $58.40. Buffett favorite Maley also noted that Occidental is a favorite of Warren Buffett. Berkshire Hathaway increased its stake in the Houston-based company to 34% by the end of 2023 from about 21% at the end of 2022. “He’s not a big guy who’s keen on leverage,” Maley said of Buffett. “And that tells me that if he’s buying a stock that’s highly leveraged to the price of oil, he believes oil prices are going higher.” Diamondback could hit $170, Maley said, implying 9% appreciation from Friday’s close of $156.24. Some 58% of Wall Street analysts have a hold on Occidental while 38% rate the stock the equivalent of buy, with a consensus price target of $67, according to FactSet. Wall Street is more bullish on Diamondback, with 82% of analysts giving the stock the equivalent of a buy and an average price target of $178. No displacement Although Yawger thinks energy stocks will rise on the back of higher crude prices as traders look for beaten down stocks, the sector won’t lead the rest of the market: “They’re not going to displace tech for the front of the pack,” he said. That said, Yawger believes the outlook for crude prices is favorable, owing to the combination of falling U.S. stockpiles and production, economic expansion in the U.S., fiscal stimulus in China, and equity markets recently posting all time highs — if the market’s a leading indicator. Not to mention mounting geopolitical risk from conflict in the Middle East and the continued Russia-Ukraine war. Just on Friday, Houthi militants claimed responsibility for a missile attack on an oil tanker, while a Ukrainian drone attack on a Russian fuel terminal on the Baltic Sea helped push oil prices higher earlier in the week. “The one wild card out there is the Ukrainian attacks on Russian infrastructure, oil infrastructure too,” Yawger said. “They stepped that up — that could put a bid in the market also.”
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