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Rising Energy Commodity Prices: Where to Place Your Bets

PART:
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Rising Energy Commodity Prices: Where to Place Your Bets PART 1 OF 4

Putin Favors Output Limit: Analyzing Crude Oil–Weighted Stocks

Crude oil

On October 10, 2016, WTI (West Texas Intermediate) crude oil (UWTI) (USO) (OIIL) (USL) (SCO) (DWTI) November contracts closed at $51.35 per barrel. The contracts were ~3.1% above the previous closing price. Oil prices gained due to Russian President Vladimir Putin’s comments in support of crude oil output limits.

Putin Favors Output Limit: Analyzing Crude Oil–Weighted Stocks

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In this series, we’ll take a look at the correlations between crude oil–weighted stocks and crude oil. We’ll also look at the correlations between natural gas–weighted stocks and natural gas.

Oil-weighted stocks

Let’s look at some of the upstream companies that are part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and operate with a production mix of at least 60% in crude oil. Below are the correlations of these oil-weighted companies with WTI crude oil from October 3 to October 10, 2016. You can also see these in the above chart. Oil-weighted stocks that are correlated strongly with crude oil over the last month include:

  • Oasis Petroleum (OAS) – 87.9%
  • Whiting Petroleum (WLL) – 87.3%
  • Carrizo Oil & Gas (CRZO) – 86.8%
  • Continental Resources (CLR) – 86.5%
  • RSP Permian (RSPP) – 84.5%
  • Murphy Oil (MUR) – 84.3%
  • Occidental Petroleum (OXY) – 83.8%

Oil-weighted stocks that had the lowest correlation with crude oil include the following:

  • Callon Petroleum (CPE) – 77%
  • Diamondback Energy (FANG) – 68.9%

Investors who are bullish on crude oil might use some of the stocks that have a high correlation with crude oil to realign their portfolios.

In the next part of this series, we’ll look at the returns of crude oil–weighted stocks compared to crude oil.

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