The global oil market is undergoing a significant transformation, driven by OPEC’s steadfast commitment to boosting oil prices. Since July, OPEC has been actively reducing its daily output by a million barrels, and this strategy is set to continue until the end of the year. This deliberate move is poised to elevate oil prices, which, in turn, will ignite a surge in oil stocks.

Pioneer Natural Resources: Riding the Wave of Confidence

Pioneer Natural Resources’ CEO, Scott Sheffield, foresaw OPEC’s actions in advance. During the company’s second-quarter conference call, Sheffield expressed his belief that Saudi Arabia’s oil minister aimed to stabilize global oil prices at $90 per barrel or higher. Sheffield confidently predicted the extension of Saudi Arabia’s one-million-barrel-a-day cut initiated on July 1, and his prediction was spot-on.

As OPEC persists in curbing production, the second half of the year is expected to witness demand surpassing supply, leading to a decline in global oil inventory levels. Sheffield’s assessment is optimistic, envisioning oil prices ranging from $80 to $100 for the remainder of 2023 and throughout 2024. This price range would enable Pioneer to amass a substantial surplus of free cash flow, estimated at $27 billion to $40 billion over the next five years.

With plans to return at least 75% of this free cash flow to investors annually through dividends and share repurchases, Pioneer’s stock is poised for a rebound, particularly as the company’s earnings recover.

Devon Energy: Maximizing Gains on Multiple Fronts

Devon Energy is strategically positioned to capitalize on surging oil prices. Higher prices will enhance cash generation from existing wells, and Devon is actively expanding its oil output by drilling new wells. Furthermore, the company is beginning to reap the benefits of cost deflation as service contracts come up for renewal. These three factors combined make it likely that Devon will enjoy substantial cash flow growth in the coming quarters.

Devon’s commitment to shareholders includes returning over half of its earnings through dividends, which are sustainable even at lower oil prices. Additionally, Devon allocates up to half of its post-base-dividend free cash flow to variable dividends, ensuring shareholders benefit as cash flow increases.

Share repurchases are also part of Devon’s strategy, having already repurchased $2.1 billion in shares over the past two years, reducing outstanding shares by 6%. With around $900 million remaining for share buybacks, Devon’s shareholders can expect further value appreciation, especially considering the stock is currently trading more than 30% below its 52-week high.

Marathon Oil stocks: Seizing Opportunities in Volatile Markets

Marathon Oil stock is positioned for growth as oil prices rally. Currently, the company’s shares are more than 15% below their 52-week high, presenting a compelling opportunity.

Marathon has seized the chance to bolster its share price by executing aggressive share repurchases, with over $700 million spent in the first half of the year and a remarkable $4.2 billion in share buybacks over the last seven quarters. This strategic move has significantly reduced the company’s outstanding share count by 24%.

Marathon oil stocks intends to continue utilizing its robust oil-derived cash flow to fund share repurchases, committing to return a minimum of 40% of its cash flow to shareholders at oil prices exceeding $60 per barrel. The combination of dividend payments and share repurchases is expected to further diminish Marathon’s outstanding share count, ultimately boosting its oil stocks price as oil prices heat up.

A Bright Future Amidst Rising Oil stocks Prices

OPEC’s determination to raise oil prices is evident in its recent decision to extend production cuts through the end of the year. This move is a catalyst for U.S. producers like Pioneer Natural Resources, Devon Energy, and Marathon Oil stocks to generate more cash, a significant portion of which will be channeled back to investors through dividends and share repurchases.

With increased cash flows and enhanced shareholder returns, these undervalued stocks have the potential to rally, making them highly appealing investment prospects in the current market climate.

Oil Stocks Amid Rising Gas Prices

Inflationary pressures are on the rise, and higher gas prices play a significant role in this concerning economic trend. Recent data from AAA reveals that, as of September 6, the national average price for a gallon of regular unleaded gas reached $3.80. This price surge has surpassed last year’s peak and earned the dubious distinction of being the second-highest nationwide average gasoline price.

As gas prices continue their upward trajectory, it’s becoming increasingly likely that the Federal Reserve will face mounting pressure to consider further interest rate hikes, potentially heightening the risk of a recession.However, every shift in market conditions presents unique opportunities for astute investors, whether markets are on an upswing or in a downturn. With crude oil prices surging and gasoline prices following suit, oil stocks are poised for potential gains in this evolving landscape..

ConocoPhillips (COP) – A Robust Contender

Our exploration begins with ConocoPhillips, a veritable giant in the oil industry. The company boasts a substantial market capitalization exceeding $147 billion and consistently ranks among the largest independent exploration and production companies in the oil sector. ConocoPhillips operates in 13 countries and boasts a workforce of over 9,700 dedicated employees.

This robust foundation positions ConocoPhillips as an oil industry heavyweight, capable of weathering the turbulence of economic fluctuations. In its most recent quarter, ConocoPhillips demonstrated its resilience by producing over 1,800 thousand barrels of oil equivalent per day (Mboe/d), a notable increase from just under 1,700 barrels per day in the 2Q22 period. Year to date, as of the end of 1H23, ConocoPhillips’ production stands at an impressive 1,798 Mboe/d, surpassing the 2022 full-year average of 1,738.

Among ConocoPhillips’ standout operations are its liquefied natural gas (LNG) projects. LNG is gaining recognition as a cleaner-burning fossil fuel when compared to coal or oil. ConocoPhillips operates LNG projects on a global scale, with notable locations in the Gulf of Mexico, the Caribbean Sea, West Africa’s coast, and Australia.

ConocoPhillips concluded the second quarter with a robust financial position, boasting $7.1 billion in cash and short-term investments. This came after distributing $2.7 billion to shareholders through a combination of $1.4 billion in dividends and $1.3 billion in share repurchases.

Notably, ConocoPhillips offers both a fixed dividend and a variable dividend that fluctuates based on the company’s performance. The latest payout included a regular dividend of $0.51 per share, offering a 1.66% yield, and a variable dividend of $0.60 per share, yielding 1.95%.

This stock has piqued the interest of Neal Dingmann, a 5-star analyst from Truist, who regards the firm’s strong presence in LNG as a significant advantage. Dingmann shares, “We believe ConocoPhillips has a premier US upstream inventory coupled with a substantial amount of attractive LNG assets. While the company’s upstream and LNG assets are more than sufficient to sustain the business for well over a decade, we wouldn’t be surprised to see COP expand its positions in either area.

While we believe US operations and LNG will dominate future growth, the company also possesses numerous other appealing assets such as Surmont and Willow, which we believe will generate robust cash flow alongside a stellar balance sheet.”

Chevron Corporation (CVX) – A Global Oil Powerhouse

The second major player in the oil industry on our radar is Chevron Corporation, a behemoth by any measure. Chevron reported nearly $240 billion in revenue last year and boasts a substantial market capitalization of approximately $318 billion.

Chevron is renowned for its involvement in oil and natural gas exploration and production, its hydrocarbon transportation assets (including a shipping company for maritime transport), its extensive refinery network that produces a diverse range of fuels, lubricants, petrochemicals, and additives, as well as its retail segment, which includes a chain of gas stations that market refined products. Additionally, Chevron operates as a 50/50 partner with Phillips 66 in the production of industrial fuels and chemicals.

Taking a closer look at the most recent quarter, 2Q23, we observe that while revenues declined by almost 29% from 2Q22, the $48.9 billion result exceeded expectations by over $900 million. Chevron’s bottom line, reported in non-GAAP measures with an EPS of $3.08, outperformed forecasts by 10 cents.

Impressively, Chevron excelled in cash flow, with cash flow from operations reaching $6.3 billion, including $2.5 billion in free cash flow. The company capitalized on its strong cash position by returning $7.2 billion to shareholders through a combination of dividends and buybacks.

Chevron last declared its dividend on July 28, at $1.51 per share, which annualizes to $6.04 per common share, yielding 3.62%. Chevron has an extensive dividend history dating back to 1990, and it has consistently increased the payout since 2005.

Clearly, Chevron stands on solid ground, underpinned by strong fundamentals. Raymond James analyst Justin Jenkins emphasized this aspect, stating, “With a robust financial base, a high relative shareholder payout, and an attractive relative asset portfolio, we believe Chevron still offers the most straightforwardly positive risk/reward profile in a market that’s becoming increasingly challenging to differentiate among the oil & gas majors. 2Q earnings were once again solid, with CVX’s Upstream portfolio demonstrating strong Permian production data, underscoring CVX’s growth trajectory in the Permian basin.”

In summary, Chevron continues to shine, boasting a secure balance sheet, top-tier leverage to the oil market, and a capital allocation strategy that aligns with investors’ interests. It’s no wonder that analysts maintain an “Outperform” rating on this industry titan.