Key Points
Energy Transfer (NYSE: ET) and Occidental Petroleum (NYSE: OXY) represent two different ways to invest in the growing demand for crude oil and natural gas. Energy Transfer, which operates more than 140,000 miles of pipeline across 44 states, is one of the largest midstream companies in North America. Occidental Petroleum, better known as Oxy, is a major upstream player that also operates a smaller midstream business.
Both stocks have rallied nearly 20% this year as rising oil prices drove more investors to the energy sector. But which stock will generate bigger gains in the second half of the year?
Energy Transfer is more stable than Oxy
Energy Transfer transports natural gas, liquefied natural gas (LNG), natural gas liquids (NGLs), crude oil, and other refined products through its pipelines. As a midstream company, it only charges downstream and upstream companies tolls to use its infrastructure.
Therefore, Energy Transfer is better insulated from volatile oil prices than its own clients. Its pipelines also transport significantly more natural gas than crude oil, giving it greater exposure to surging demand for natural gas among AI data center operators. It’s also fully covered its distributions with its adjusted distributable cash flow (DCF) over the past few years.
Oxy generates most of its revenue from its upstream business, which flourishes when crude oil prices surge but flounders when they decline. That’s because high oil prices boost its revenues much faster than its operating expenses.
The price of WTI crude oil has declined from a four-year high of $112.25 per barrel in mid-May to about $69 today. That sounds worrisome, but Oxy merely needs WTI crude oil prices to stay above $40-$45 per barrel to support its current capex and dividends. Its free cash flow (FCF) will also grow rapidly as long as oil remains above $60 per barrel.
Which stock will deliver bigger gains for the rest of the year?
Energy Transfer trades at just seven times this year’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), and it could be revalued as a higher-growth AI infrastructure play as data centers consume more natural gas. It also pays a high forward yield of 6.9%. Oxy looks even cheaper at four times this year’s adjusted EBITDA, but it pays a lower forward yield of 2.3% and will struggle if oil prices drop even further.
Therefore, as someone who’s not certain where oil prices will head in the second half of 2026, I think Energy Transfer is a better energy pick right now than Oxy. Its business model is more stable, it pays a higher yield, and it has more exposure to the growing AI market.
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Leo Sun has positions in Energy Transfer. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
