Occidental Petroleum Is Up 9% Since the Iran Conflict. Here Are 2 Things Investors Need to Know.

<p>Oil prices have spiked since Israel and the U.S. launched military strikes against Iran. Brent oil, the global benchmark price, has risen from less than $80 a barrel before the conflict began to more than $100 a barrel. Fueling the surge in crude prices is the disruption to global oil supplies, as tankers can't safely transit the Strait of Hormuz.</p>
<p>The rally in oil prices has driven up most <a href="https://www.fool.com/investing/stock-market/market-sectors/energy/oil-stocks/?utm_source=yahoo-host-full&amp;utm_medium=feed&amp;utm_campaign=article&amp;referring_guid=206f7afd-3cdd-42b6-9609-386fc2fc957b">oil stocks</a>, including Occidental Petroleum (NYSE: OXY), which has gained over 9% since the war began. Here are two things investors need to know before buying the oil stock. </p>
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<h2>Occidental has underperformed the surge in crude prices</h2>
<p>Oil prices have gone hyperbolic this year. Brent has rocketed nearly 70% since the year began due to the growing conflict with Iran. While that has helped fuel a rally in Occidental's stock, shares are only up about 40% since the beginning of the year, underperforming the rise in crude prices.</p>
<p>That's due largely to the market's belief that oil prices won't remain elevated for very long. The U.S. is working to secure the Strait of Hormuz to ensure oil flows freely out of the Persian Gulf. Additionally, the U.S., along with other members of the International Energy Agency, has agreed to release some of its emergency oil stockpiles to help fill the gap. Meanwhile, the U.S. is hopeful the military attacks will drive Iran to the bargaining table. Oil futures contracts reflect this belief. While Brent oil with a May 2026 delivery date trades above $100 a barrel, contracts with deliveries later this fall trade in the mid-to-low $80s.</p>
<p>An end to the conflict, or at least the risk of further supply disruptions, could cause oil prices to fall back to their pre-war level, taking Occidental's stock down with them. On the other hand, if Iran continues to impede oil exports through the Strait of Hormuz or damages the oil infrastructure of neighboring Gulf nations, crude prices, especially for later-dated futures contracts, could continue to rise. That could give Occidental Petroleum shares more fuel to rally.</p>
<h2>Occidental can thrive in either scenario</h2>
<p>Occidental Petroleum wasn't expecting oil prices to surge 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 grow its production by about 1%. Occidental expects to generate more than $1.2 billion of incremental free cash flow this year at last year's average oil price, thanks to this spending cut and the interest expense savings from achieving its targeted debt level following the sale of its <a href="https://www.fool.com/investing/stock-market/market-sectors/materials/chemical-stocks/?utm_source=yahoo-host-full&amp;utm_medium=feed&amp;utm_campaign=article&amp;referring_guid=206f7afd-3cdd-42b6-9609-386fc2fc957b">chemicals</a> subsidiary (OxyChem). </p>