Occidental Petroleum Rises 9% Since Iran Conflict. Here are 2 Things Investors Should Know.

Oil prices have risen since Israel and the US launched military strikes against Iran. Brent oil, the global benchmark, has risen from below $80 a barrel before the dispute began to above $100 a barrel. Fueling the rise in crude prices is the disruption of global oil supplies, as tankers cannot safely pass through the Strait of Hormuz.

The rally in oil prices has increased sharply oil stocksincluding Occidental Petroleum (NYSE: OXY)which has gained more than 9% since the war began. Here are two things investors should know before buying an oil stock.

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Oil prices have soared this year. Brent is up nearly 70% since the start of the year due to the escalating conflict with Iran. While that helped fuel the rally in Occidental’s stock, shares are up only about 40% since the start of the year, underperforming crude prices.

That’s because of the market’s belief that oil prices won’t stay high for long. The US is working to secure the Strait of Hormuz to ensure that oil flows freely in the Persian Gulf. Additionally, the US, along with other members of the International Energy Agency, agreed to release some of its emergency oil reserves to help fill the gap. Meanwhile, the US hopes that a military strike will bring Iran to the negotiating table. Oil futures contracts reflect this belief. While Brent oil with a delivery date of May 2026 is trading above $100 a barrel, it is contracting for delivery later this year trading in the low $80s.

The end of the conflict, or at least the risk of further supply disruptions, could cause oil prices to return to their pre-war levels, sending Occidental stocks down. On the other hand, if Iran continues to block oil exports through the Strait of Hormuz or damages the oil infrastructure of neighboring Gulf nations, crude prices, especially futures contracts, may continue to rise. That could give Occidental Petroleum shares more fuel.

Occidental Petroleum did not expect oil prices to increase this year. The oil company plans to spend about $5.7 billion on capital projects this year, about $550 million less than last year. That will enable it to increase its production by about 1%. Occidental expects to generate more than $1.2 billion in incremental free cash flow this year at last year’s average oil price, due to these cost reductions and interest expense savings from reaching the target debt level following last year’s oil price selloff. chemicals subsidiary (OxyChem).

Meanwhile, higher oil prices will allow Occidental Petroleum to generate an even bigger gusher of additional free cash flow this year. It can use that breathlessness to continue to strengthen its increasingly advanced balance sheet and return more cash to shareholders through share repurchases.

Although Occidental Petroleum’s shares have rallied since the start of the war with Iran, they have not risen as much as crude oil prices. As a result, they can continue to rise as the battle progresses. At that point, Occidental can win even if the war ends and crude prices go down. That makes it the best oil stock to buy in the current environment.

Before buying stock in Occidental Petroleum, consider the following:

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Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a policy of disclosure.

Occidental Petroleum Rises 9% Since Iran Conflict. Here are 2 Things Investors Should Know. was first published by The Motley Fool