Occidental Petroleum (NYSE:OXY) shares climbed 3.6% to $53.54 in afternoon trading on Wednesday, outperforming the broader energy sector. The Energy Select Sector SPDR Fund (NYSEARCA:XLE) rose just 1.1% to $55.25. The move came as Evercore ISI upgraded the stock and crude oil prices surged on renewed geopolitical risks.
Evercore Upgrade Boosts Sentiment
Evercore ISI raised its rating on Occidental to 'Outperform' from 'Underperform' and lifted its price target to $65 from $58. The firm cited lower costs and reduced debt as key drivers for improved free cash flow, after a period of underperformance. Evercore also flagged the potential for share buybacks in the second half of 2028, though a dividend increase is not expected in the near term.
Oil Prices Surge on Geopolitical Tensions
The rally in Occidental shares was also fueled by a sharp increase in oil prices. Brent crude jumped 6.6% to $79.07 per barrel, while West Texas Intermediate (WTI) rose 6.1% to $74.71. The spike followed U.S. President Donald Trump's warning of new strikes on Iran, raising concerns about disruptions to oil shipments through the Strait of Hormuz, a critical chokepoint for global oil flows.
Bob Yawger, director of energy futures at Mizuho, described Tuesday's move as 'the next level of breakaway' from the U.S.-Iran memorandum. However, he noted that a diplomatic resolution remains in the interest of both sides. The uncertainty has led to increased volatility, with ICIS analyst Ajay Parmar stating that 'volatility really is here to stay.'
Debt Reduction Progress
Occidental has made significant progress in reducing its debt burden. As of May 5, the company had repaid $7.1 billion in principal debt, bringing the total to $13.3 billion. The company is targeting further reductions to $10 billion. In the first quarter, Occidental reported adjusted earnings per share of $1.06 and production of 1.426 million barrels of oil equivalent per day.
The market is closely watching Occidental's balance sheet, which still carries more debt than peers like Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX). Evercore's upgrade reflects optimism that the company's debt reduction efforts will eventually lead to higher shareholder returns.
Market Context and Outlook
Occidental's stock has been a standout performer in the energy sector. On Tuesday, the shares jumped 5.88% to $51.68, outpacing rivals such as EOG Resources (NYSE:EOG), Devon Energy (NYSE:DVN), and Diamondback Energy (NASDAQ:FANG). The broader market, however, was weaker, with the S&P 500 falling 0.45%.
The bull case for Occidental is not solely dependent on higher oil prices. Instead, it hinges on the stock catching up if Brent remains in the high $70s and the company continues to reduce debt. Evercore's $65 target suggests the market is still pricing Occidental based on past leverage and inconsistent returns. The upcoming second-quarter earnings report, scheduled for August 5 after the bell, will be a critical test of whether the company can deliver disciplined capital expenditure, solid production, and further debt reduction.
Investors will be watching closely to see if the recent geopolitical-driven rally can be sustained and translated into a cash-flow story. The stock has less than a month to shift the narrative from geopolitical tailwinds to fundamental improvements.
