uploads///Upstream Price Performance

Are Crude Oil and Natural Gas Stocks Finally Bottoming?


Dec. 4 2020, Updated 10:53 a.m. ET

Brutal sell-off in commodities

It’s important to note that 2015 was a brutal year for all of the commodities. Energy commodities weren’t an exception. Crude oil (USO) fell by ~30% in 2015. Natural gas (UNG) saw a decline of ~19% during the same period. This resulted in a sell-off in all of the upstream energy companies. Their operating margins are directly tied to the price of the underlying commodities that they produce.

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Bull market hope?

Contrary to 2015, 2016 is turning out to be filled with hope for bulls, especially in upstream stocks. As you can see in the above table, for the past one to three months, crude oil and natural gas producers had a positive performance. They have been aided by the bounce in crude oil and natural gas. In the past month, upstream companies like Murphy Oil (MUR) and Energen (EGN) rose by ~61% and ~40%, respectively. Crude oil rose by ~33% during the same period. In a three-month timeframe, natural gas equities are showing significant increases. Range Resources (RRC), CONSOL Energy (CNX), and Southwestern Energy (SWN) rose by ~59%, ~47%, and ~35%, respectively. Natural gas was almost flat during the same period.

In this series

Is this a sentimental euphoria for crude oil and natural gas stocks? Is it a bottoming action in crude oil and natural gas stocks? If this is a bottoming action, then why are different upstream companies showing different percentage increases even though they produce the same kind of commodities? In this series, we’ll try to analyze some of these moves by studying the correlation coefficients and fundamentals for these stocks.

Let’s move on to the next part. We’ll discuss why different crude oil producers moved by different magnitudes.


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