Brent crude oil prices have surged over 70% this year, surpassing $100 a barrel, largely driven by escalating tensions with Iran. This spike has propelled energy stocks, with the average S&P 500 energy stock up approximately 40% year-to-date. Companies like Occidental Petroleum (OXY) and Diamondback Energy (FANG) are positioned to capitalize significantly if the conflict escalates further, potentially doubling their stock prices by 2026.

Occidental Petroleum has seen its shares rise nearly 60% this year, bolstered by a $9.7 billion sale of its chemicals subsidiary to Berkshire Hathaway, allowing for debt repayment and a stronger capital structure. With higher oil prices, Occidental anticipates generating over $1.2 billion in free cash flow this year, which can be used for debt reduction and share repurchases, enhancing shareholder value.

Diamondback Energy, up about 35% this year, also stands to benefit from sustained high oil prices. With a low-cost operation model, it can generate substantial free cash flow, enabling aggressive debt reduction and shareholder returns. The potential for both companies to reshape their capital structures amid rising oil prices presents a compelling opportunity for investors.

Source: fool.com