In Speedy Meeting, OPEC Promises More Oil — But Can It Deliver?

With the winter Olympics around the corner it’s fitting that OPEC+ today held a record-fast meeting lasting just 16 minutes, in which ministers affirmed expectations and agreed to increase oil production by 400,000 barrels per day in March. 

For the past year the group (which now produces 27.8 million bpd per day) has been gradually adding back millions of barrels of daily supply to a global oil market that had been gutted by the pandemic. The market would have welcomed even more, as prices, now at $90 per barrel, are at seven-year highs and generating massive profits for all players.

Despite the good times for oil companies, there is some concern in the market that OPEC+ might not even have the wherewithal to follow through on its intentions. Analysts at Rystad note this morning that OPEC+ is actually trailing its own production targets by some 700,000 bpd due to shortfalls in Nigeria, Libya and Angola. Even Russia pumped 50,000 bpd below its quota at 10.05 million bpd. According to Mizuho, in January the cartel managed just a net 50,000 bpd increase. And there’s increasingly a geopolitical premium built in to the price of oil, tied both to uncertainty over Russian President Vladimir Putin’s plans for a Ukraine adventure as well as slow going in nuclear program negotiations with Iran. 

Naturally, this presents big opportunities, especially for American producers. ExxonMobil yesterday said its breakeven oil price in 2021 was $41/bbl. It intends to boost capex to $24 billion this year and ramp production in the Permian basin of west Texas 25% to 600,000 bpd. Exxon posted $8.9 billion profit for the fourth quarter, its best result in seven years. Investors have already bid shares up 30% in January, including 6% Tuesday. 

And big refining company Marathon Petroleum yesterday stunned analysts with blockbuster earnings of $1.30 per share with obliterated consensus of 55 cents and a stellar operating margin of $21 per barrel processed. In the past quarter Marathon paid down $2.1 billion in debt (reducing leverage to 21% of total capital) and bought back $2.7 billion of shares, far more than anticipated. Marathon also surprised with plans for an incremental $5 billion share buyback. Up 17% in the past month to $76, Marathon (MPC) trades at 6x earnings and a dividend yield of 3%. 

There’s likely more upside, as the world continues recovering its oil appetite. Key datapoint: passengers through TSA airport checkpoints were down 22% month-over-month from December, and still 78% below 2019 levels.