Middle East Conflict Drives Up Oil Prices, Boosting Occidental and Energy Transfer

The recent conflict in the Middle East has highlighted the importance of oil and natural gas to modern society. The Strait of Hormuz, a key transit chokepoint, has been shut down, leading to reduced supply and rising prices for these commodities.

According to various estimates, around 20% of the world's oil and natural gas flows through the Strait of Hormuz. This has resulted in severely constrained supply, driving up prices.

For a diversified portfolio, it is essential to include some exposure to oil and natural gas. Two options for adding energy exposure are Occidental Petroleum (OXY) and Energy Transfer (ET).

Occidental Petroleum is an upstream energy company that produces oil and natural gas, with operations in the Middle East and Africa but most of its production and sales based in the US. This means it stands to benefit more from high prices resulting from the conflict than it is negatively affected by it.

However, Occidental's financial results are also highly volatile due to its dependence on commodity prices. Energy Transfer, a midstream master limited partnership (MLP), owns a large portfolio of energy infrastructure assets across North America and charges energy companies fees for using these assets.