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Crude Oil and Natural Gas Diverge: The Impact on Energy Stocks

PART:
1 2 3 4 5
Part 2
Crude Oil and Natural Gas Diverge: The Impact on Energy Stocks PART 2 OF 5

Are Oil-Weighted Stocks Escaping Oil’s Weakness?

Oil-weighted stocks

Between August 25 and September 1, oil-weighted stocks rose 2.9% while US crude oil (USO)(DBO) October futures fell 1.2%. So, on average, oil-weighted stocks clearly avoided the fall in US crude oil prices.

Are Oil-Weighted Stocks Escaping Oil’s Weakness?

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The oil-weighted stocks that outperformed during this period are as follows.

  • California Resources (CRC) at 6.9%
  • Denbury Resources (DNR) at 6.8%
  • Whiting Petroleum (WLL) at 3.9%

CRC had the second-lowest correlation with US crude oil prices. We discussed it in Part 1 of this series.

The oil-weighted stocks that underperformed over this period are as follows.

  • Occidental Petroleum (OXY) at 0.9%
  • Murphy Oil (MUR) at 0.8%
  • Callon Petroleum (CPE) at -0.4%

Last week, Callon Petroleum (CPE) had the second-highest correlation with US crude oil prices.

These oil-weighted stocks are all constituents of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), with a minimum production mixes of 60% in oil. In the past five trading sessions, except for CPE, all oil-weighted stocks closed in the green. Positive broader equity market sentiment could be the cause.

Long-term performance

Between February  11, 2016, and September 1, 2017, US crude oil active futures rose 80.4%. On February  11, 2016, US crude oil prices settled at a 12-year low. However, during this period, the United States Oil Fund LP (USO) rose only 21% because of the negative roll-yield. USO tracks US crude oil futures.

Oil-weighted stocks, on average, rose 34.6% between these two dates. However, the oil-weighted stocks that outperformed during this period were as follows.

  • Continental Resources (CLR) rose 83%.
  • Kosmos Energy (KOS) rose 78.8%.
  • Oasis Petroleum (OAS) rose 72.3%.

The oil-weighted stocks below underperformed during this period.

  • Carrizo Oil & Gas (CRZO) fell 40.6%.
  • Whiting Petroleum (WLL) fell 6.7%.
  • Occidental Petroleum  (OXY) fell 3.5%.
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