OPEC has made it clear that it wants to drive oil prices higher. It has been curtailing its output since July, when it revealed a 1-million-barrel per day (BPD) cut. The group of oil-producing nations recently agreed to extend those cuts through the end of the year. 

That catalyst should drive oil prices even higher, providing a boost for oil stocks. Their shares could rocket as they return more of their oil-fueled cash flows to shareholders.

Playing out as expected

OPEC's decision to extend its production cuts likely comes as no surprise to Pioneer Natural Resources (PXD -2.28%) CEO Scott Sheffield. On the company's second-quarter conference call, Sheffield stated his belief that Saudi Arabia's oil minister wanted to stabilize the global oil price at $90 or higher. Because of that, Sheffield said he expected "Saudi to extend their 1 million-barrel-a-day cut they initiated July 1 toward the end of '23." That's exactly what happened. 

This continued supply curtailment will result in demand exceeding supply in the second half of the year. As a result, global oil inventory levels will decline. These factors are "supportive for oil pricing in the $80 to $100 range for the remainder of '23 and through '24 on," in Sheffield's view.

Oil prices in that range would enable Pioneer to generate a gusher of free cash flow. In that oil price range, it could produce a cumulative $27 billion to $40 billion in free cash flow over the next five years. That would give it a boatload of cash to return to shareholders.

Pioneer plans to return at least 75% of its free cash flow to investors each year through its base dividend, share repurchases, and variable dividends. With shares down about 10% from their 52-week high, they could rocket as the company's earnings rebound and it returns more of its oil-fueled cash flows to shareholders. 

A trio of catalysts

Devon Energy (DVN 0.19%) is also in an excellent position to capitalize on higher oil prices. They'd enable the producer to generate more cash from its existing wells. Meanwhile, Devon continues to drill more wells to grow its oil output. On top of all that, it's starting to capture cost deflation as its service contracts come up for renewal. These three catalysts should enable Devon to produce a lot more cash in the coming quarters.

Devon plans to return over half that money to shareholders through dividends. It pays a base dividend it can sustain at lower oil prices. In addition, Devon pays out up to half its post-base-dividend free cash flow in variable dividends. Devon's total dividend outlay should also rise as its cash flow grows.

Meanwhile, Devon uses some of the cash it retains to repurchase shares. The company has already repurchased $2.1 billion in shares over the past two years, reducing its outstanding shares by 6%. It has about $900 million remaining on its current authorization, enough to retire another 3% of its outstanding shares. That combination of rising cash flows, higher dividend payments, and meaningful repurchases could drive up the share price, which currently sits more than 30% below its 52-week high.

Buying its stock hand over fist

Marathon Oil (MRO 0.11%) could also rocket as oil prices rally. Shares of the oil company currently sit more than 15% below their 52-week high.

Marathon has taken advantage of its lower share price by gobbling up its stock. It spent over $700 million on share repurchases during the first half of the year. The company has now spent $4.2 billion on share repurchases over the last seven quarters. That has reduced its outstanding share count by a whopping 24%.

The company will continue using its oil-fueled cash flows to scoop up shares. It plans to return at least 40% of its cash flow to shareholders at oil prices above $60 a barrel. While some of that return comes from its dividend payment, most will be through repurchases. Future buybacks would put an even bigger dent in Marathon's outstanding share count, which could help catapult its stock price as oil prices heat up.

Higher oil prices are in the forecast

OPEC has made it clear it wants higher oil prices. That's clear by its recent decision to extend its production cuts through the end of the year.

That OPEC-driven boost will enable U.S. producers like Pioneer Natural Resources, Devon Energy, and Marathon Oil to produce more cash, the bulk of which they intend on returning to investors through dividends and share repurchases. Those increased cash flows and shareholder returns could give their beaten-down stocks the fuel to rally. Because of that, they look like compelling investment opportunities right now.