Which Upstream Stocks Correlate Most Closely with Crude Oil?



Crude oil bearishness

On June 27, 2016, US crude oil (USO) (OIIL) closed at $46.33 per barrel—9.6% below its highest level for 2016 of $51.23 per barrel on June 8. That’s also 2.8% below its previous closing price. This could be attributed to the continuing bearishness for this growth-driven commodity in the aftermath of the United Kingdom (EWU) leaving the European Union (FEZ). On June 27, the US Dollar Index (UUP) surged to its highest level since March 16, 2016, to close at 96.54. Read What’s the Correlation between Crude Oil and the Dollar Index? to learn more.

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

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Upstream 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% crude oil. Below are the correlation percentages of these upstream companies with WTI (West Texas Intermediate) crude oil from May 27 to June 27, 2016. You can also see these in the above table.

Oil-weighted stocks that have correlated strongly with crude oil over the last month include the following:

  • Oasis Petroleum (OAS): 86.1%
  • Hess (HES): 85.90%
  • Murphy Oil (MUR): 84.2%
  • Carrizo Oil and Gas (CRZO): 82.7%
  • Concho Resources (CXO): 80.5%
  • Bill Barrett (BBG): 78.3%
  • Denbury Resources (DNR): 77.9%

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

  • VAALCO Energy (EGY): 42.3%
  • Triangle Petroleum (TPLM): 25%

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

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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