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Are Oil-Weighted Stocks Underperforming Crude Oil?

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Aug. 18 2020, Updated 10:31 a.m. ET

Oil-weighted stocks and crude oil in the last six trading sessions

Between May 20 and May 27, 2016, an equally weighted basket of oil-weighted stocks that operate with a production mix of at least 60% in crude oil (USL) (BNO) and that are part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) fell 0.58% compared to a 3.3% rise in WTI (West Texas Intermediate) crude oil during the same period. The returns in oil-weighted stocks are also adjusted for dividends.

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How are oil-weighted stocks performing compared to crude oil?

During the same period, Abraxas Petroleum (AXAS) returned 10.7%. Whiting Petroleum (WLL) and Diamondback Energy (FANG) rose 6.74% and 6.71%, respectively. These three stocks outperformed their peers. On the other hand, Triangle Petroleum (TPLM), Bonanza Creek Energy, (BCEI), and Bill Barrett (BBG) lost 25.8%, 18.9%, and 9.1%, respectively, over the same period. Triangle Petroleum, Bonanza Creek Energy, and Bill Barrett fell the most among the peer companies here. Apart from crude oil’s impact, which we discussed in the previous part, the relative performance of these oil-weighted stocks could be related to their earnings and the market’s expectation for their future prospects.

Oil-weighted stocks and crude oil since 2016 lows

On February 11, 2016, US crude oil (USL) touched a 12-year low. Between February 11 and May 27, 2016, US crude oil gained 88.2%. The basket of these equally weighted upstream stocks gained 73.2% over this period. Denbury Resources (DNR), California Resources (CRC), and Whiting Petroleum (WLL) returned 281.5%, 152.3%, and 144.8%, respectively, during this time. During the same period, Vaalco Energy (EGY), Halcón Resources (HK), and Triangle Petroleum (TPLM) lost 0.93%, 43.0%, and 52.4%, respectively. These three stocks underperformed their peers between February 11 and May 27, 2016.

Thus, oil-weighted stocks have underperformed crude oil in the last six trading sessions. They have also underperformed crude oil since crude’s 2016 lows.

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