Oil-producing cartel OPEC is finally paying heed to calls from Western nations to boost its output and help cool down the overheated oil market.

Brent crude — the global benchmark for oil prices — jumped to a nearly 13-year high of around $139 per barrel in March as Russia’s war in Ukraine threatened to further disrupt oil supply in an already tight energy market. Although Brent crude dipped below $100 per barrel by mid-April, it has since bounced back and hovered around $121 per barrel as of Friday afternoon.

So far, OPEC has barely budged. The cartel, which produces almost 40% of the world’s supply of crude oil, decided to increase monthly oil production by 432,000 barrels per day in May, a slight bump up from the 400,000 barrels per day it had been adding every month since August 2021.

The pace is about to change, though. OPEC Plus — a group that comprises the 13 OPEC members plus 10 other notable oil-producing nations — agreed on Thursday to increase monthly production by 648,000 barrels per day in July and August.

Image source: Getty Images.

Although OPEC says it made the decision in anticipation of higher demand as economies across the globe reopen from their COVID-19 lockdowns, it appears another factor was fear of a recession fueled in part by sky-high oil prices and the drop in oil output from Russia in recent months. Russia is the world’s No. 3 oil producer, behind the U.S. and Saudi Arabia, and both Russia and Saudi Arabia are OPEC+ members.

What does OPEC’s move mean for investors in oil stocks?

OPEC’s decision to pump up production is undeniably important, and is expected to halt the seemingly unstoppable rally in global oil prices that has spurred inflation and increased the likelihood of an economic slowdown.

Lower oil prices, however, could also bring an end to the recent rally in oil stocks. Oil stocks tend to move in tandem with oil prices, as higher crude prices mean more profits for oil producers, and vice versa.

However, there’s something important to note here.

Based on Thursday’s rise in oil prices — which occurred despite the OPEC’s announcement that it would increase production — it appears the market believes those incremental boosts may not be enough to meet demand, especially during peak summer travel season.

That argument holds water given that most of the OPEC+ members are already finding it hard to meet their existing quotas, leaving them with little capacity to ramp up production further. Oilprice.com estimates that only Saudi Arabia, the United Arab Emirates, and Iraq may have spare capacity.

The oil markets, though, can be unpredictable, and oil prices could still come down — an occurrence that could trigger panic-selling in oil stocks. If that happens, long-term investors should look for opportunities to pick up shares of the best oil industry companies. ExxonMobil (XOM 1.45%) and Devon Energy (DVN 0.93%) are two such stocks to put on your radar.

You can rely on this dividend even if oil slumps 50%

ExxonMobil is one of the world’s largest fully integrated oil companies, operating across the entire business spectrum in oil and natural gas. However, upstream activity — exploration and production — brought in nearly 68% of its cash flow from operations last year, so ExxonMobil’s profitability depends heavily on oil prices.

The energy giant has cut its cost of production significantly in recent years, bringing its breakeven oil price down to just $41 per barrel in 2021. In other words, at a Brent crude price of $41 per barrel, ExxonMobil could generate enough cash flow to cover its capital expenditures and its dividend. By 2027, ExxonMobil expects its breakeven oil price to decline to only $30 per barrel.

ExxonMobil is also a Dividend Aristocrat, having increased its payout annually for 39 consecutive years now, and at Friday’s share price, its payout yields 3.6%. That means even if oil prices were to somehow tumble to around $37 per barrel, you could still get a fatter dividend check from ExxonMobil. There’s nothing better than earning steady passive income during tough times, which is one more reason you’d want to buy this oil stock if it drops.

This 6.7% yield looks safe for now 

Devon Energy is an exploration and production company, and therefore has high exposure to oil prices. But it has emerged as one of the most compelling dividend stocks in the oil and gas industry in recent months, thanks to the fixed-plus-variable dividend policy management initiated last year.

Every quarter, on top of its fixed “base” dividend, Devon pays a variable dividend of up to 50% of the excess free cash flow it has left after funding the base dividend and capital expenditures. Here’s how much passive income that’s turned out to be.

For 2022, Devon has already increased its annual fixed dividend to $0.64 per share, and could end up paying a variable dividend of more than $4 per share if West Texas Intermediate crude — the U.S. benchmark for oil — averages $100 per barrel (it was around $120 on Friday). 

Of course, Devon’s variable dividend will fall if oil prices do. Yet the company has a solid balance sheet, prioritizes dividends, and is also repurchasing shares. Reducing its outstanding share count should boost its per-share dividend payout even in a lower-oil-price environment. At Friday’s share price, the payout offers a hefty yield of 6.7%, and that could only get bigger if the stock price falls. With all that going for Devon Energy, this is clearly a dividend stock you might want to buy on any dip.