The price of Brent crude oil has risen by more than 90% to roughly $120 per barrel this year as the escalating Middle East conflict disrupted shipments through the Strait of Hormuz -- a bottleneck for about 25% of the world's maritime oil trade. Those soaring prices drove many oil stocks higher, but some of the top names could keep rising as the conflict drags on.
Three of those stocks are Occidental Petroleum (OXY 1.80%), Chevron (CVX 1.51%), and ExxonMobil (XOM 0.35%). Let's see why they're still worth buying in this choppy market.
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Occidental Petroleum
Occidental Petroleum, also known as Oxy, is primarily an upstream oil and gas company. It also operates a smaller midstream pipeline business, but it sold its downstream business (OxyChem) earlier this year.
Rising oil prices provide the strongest tailwinds for upstream companies, as their revenue growth will significantly outpace expenses. They're mildly positive for midstream companies, which collect more "tolls" as more oil and gas flows through their pipelines, but negative for downstream companies -- which face higher input costs.
NYSE: OXY
Key Data Points
Oxy's heavy exposure to the upstream market, lighter exposure to the midstream market, and the divestment of its downstream business all make it an ideal play on soaring oil prices. Approximately 80% of its future portfolio has an oil breakeven price below $50 per barrel.
As long as oil stays above that level, Oxy can keep making money hand over fist, reducing its debt, repurchasing more shares, and increasing its dividend. It's raised its payout annually for the past six consecutive years, and it pays a forward yield of 1.9%. Its stock has already risen 36% this year, but it still trades at just 11 times forward earnings. Therefore, rising oil prices could drive Oxy's high-flying stock even higher through the end of the year.
Chevron and ExxonMobil
Chevron and ExxonMobil, two of the world's largest integrated energy companies, are more appealing plays for investors who think Oxy and its upstream peers are too volatile. Both companies own large upstream, midstream, and downstream businesses.
Chevron and ExxonMobil both get most of their oil from the United States, but they're expanding in oil-rich overseas nations like Guyana and Kazakhstan. They've also been increasing the capacity of their existing oil fields to ramp up their production over the next few years.
NYSE: CVX
Key Data Points
Both companies' upstream businesses have breakeven oil prices below $50 per barrel. They plan to further reduce those prices over the next few years by cutting their production costs in the Permian Basin and Guyana oilfields. If oil prices stay elevated, the growth of their upstream and midstream businesses should offset the pricing pressure on their downstream businesses -- which generally fare better when oil prices are low. If oil prices decline, they can rely on the growth of their downstream segments to offset that pressure. Oxy -- which sold OxyChem for $9.7 billion in cash to alleviate its debt -- won't have that downside protection.
NYSE: XOM
Key Data Points
Chevron and ExxonMobil have raliled 22% and 25%, respectively, this year as oil prices rose. They both underperformed Oxy because they had greater exposure to the downstream market, but they'll likely outperform Oxy over the long term as oil undergoes more cyclical swings.
Chevron and ExxonMobil have raised their dividends annually for 39 years and 43 years, respectively. That puts them on track to join the Dividend Kings, that elite group of blue chip companies that have raised their payouts for at least 50 consecutive years.
Chevron pays a forward yield of 3.9%, while ExxonMobil pays a forward yield of 2.8%, but both companies deliver more consistent dividend growth than Oxy. Both stocks also trade at just 14 times forward earnings -- so they could have plenty of room to run.
