Oil, Geopolitics, and Occidental Petroleum: Here's Where the Stock Could Be in 12 Months

A lot has happened with Occidental Petroleum (NYSE: OXY) over the past year. The oil company sold its chemicals business and completed its debt reduction plan. Meanwhile, oil prices have surged due to the war with Iran.

The surge in oil prices and the related geopolitical issues in the Middle East could be big catalysts for the oil stock over the next 12 months. Here's what I see ahead for Occidental.

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Oil prices could remain elevated into 2027

Oil prices have skyrocketed this year. Brent oil, the global benchmark price, has surged nearly 80% to almost $110 per barrel. That's well above the $60 to $70 a barrel range most in the oil industry expected this year. Despite that surge in oil prices, shares of Occidental Petroleum are only up about 30% in the past year.

The disconnect stems from the market's belief that the Strait of Hormuz will reopen soon and that global oil supplies will quickly normalize, driving down crude prices. That view, however, doesn't reflect the reality of the oil market. Several countries in the Persian Gulf had to shut in wells as above-ground storage terminals reached capacity. Some of those wells will take months to restart due to the time needed to complete workovers and repressurize oil reservoirs. Additionally, the world has burned through hundreds of millions of barrels of oil from inventory, which will take months to rebuild. As a result, the oil market could remain tight well into 2027, keeping oil prices elevated. I don't think Occidental's current share price reflects this reality.

The changing landscape in the Middle East

I also don't think it's a stretch to say that the war with Iran has changed the geopolitical picture in the Middle East forever. One example is the UAE's decision to leave OPEC. That move will free the Gulf nation to pursue its own oil policy, including growing its production. It has the potential to boost its capacity to 6 million barrels per day (it produced less than 3.4 million barrels per day before the war). The UAE also fast-tracked a new pipeline to double its capacity to bypass the Strait of Hormuz, which it expects to start operating next year.

This decision should benefit Occidental Petroleum, which has a long history of operating in the UAE. The company has partnerships with the Abu Dhabi National Oil Company (ADNOC), including exploration blocks in the country. It could ramp up its investments to help the UAE increase its production. ADNOC is also evaluating a potential investment in a U.S. carbon capture project by Occidental, which could help accelerate this business's growth. Occidental's relationship with the UAE is an underappreciated long-term growth catalyst for the oil giant.

High-octane upside potential

I think Occidental's share price could be a lot higher a year from now. I anticipate that crude prices will remain elevated well into 2027, enabling Occidental to generate a windfall of surplus cash to strengthen its balance sheet and repurchase shares. Additionally, I think its relationship with the UAE is a hidden upside catalyst. If crude prices are still elevated ($80+ a barrel) and it capitalizes on its UAE relationship, the stock could be up another 25% or more a year from now.

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