Oil prices have surged to around $100 a barrel, driven by escalating tensions in Iran and the potential closure of the Strait of Hormuz, a critical chokepoint for global oil supply. This spike raises concerns about supply disruptions, which could push prices even higher and negatively impact the broader economy and stock markets. However, certain energy stocks, particularly upstream players, stand to benefit from these developments.

ConocoPhillips and Diamondback Energy are highlighted as two stocks to consider for hedging against rising oil prices. ConocoPhillips, a major upstream producer, could see its free cash flow soar to over $20 billion if oil hits $150 a barrel, with management planning to return 45% of excess cash to shareholders. Similarly, Diamondback Energy, focused on North American oil and gas, is well-positioned to capitalize on higher prices, having generated $5.5 billion in free cash flow last year and actively returning cash to shareholders.

For portfolio managers, the potential for oil prices to reach new highs underscores the importance of incorporating energy stocks like ConocoPhillips and Diamondback Energy into investment strategies to mitigate risks associated with supply shocks.

Source: fool.com