Oil at 2016 high
On May 16, 2016, US crude oil (USO) closed at $47.72. So far, it’s the highest level in 2016. It’s the highest level since November 3, 2015. Crude oil rose 3.3% on May 16, 2016—compared to the previous trading session. Goldman Sachs (GS) said that oil (UCO)(BNO) demand overtook supply earlier than expected due to supply disruptions across the world and rising demand. This series will analyze the correlation of oil-weighted stocks with crude oil. We’ll also look at the correlation of natural gas–weighted stocks with natural gas. It could help investors realign their portfolios based on quantitative data.
Which upstream stocks to look at?
Among 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% of crude oil, Carrizo Oil & Gas (CRZO) had the highest positive correlation with WTI (West Texas Intermediate) crude oil over the last month between April 16 and May 16, 2016. It had a correlation of about 80% with US crude oil during this period.
Upstream stocks such as Clayton Williams Energy (CWEI), Oasis Petroleum (OAS), and Murphy Oil (MUR) had correlations of 68.5%, 65.5%, and 65.1%, respectively, with US crude oil over the past month—as shown in the above table.
Diamondback Energy (FANG) and Synergy Resources (SYRG) had correlations of 34.6% and 34.9%, respectively, with WTI crude oil in the past month. Among XOP stocks that operate with production mixes of at least 60% crude oil, Diamondback Energy and Synergy Resources had the lowest one-month correlations with WTI crude oil.
Read Analyzing the Correlation of Crude Oil and Industrial Metals and How Are Crude Oil Prices and the S&P 500 Correlated? to learn more about the correlation of crude oil with other assets.
Next, we’ll look at the return of these oil-weighted stocks compared to crude oil.