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Crude Oil Fell Again: What about Oil-Weighted Stocks?

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Nov. 20 2020, Updated 4:03 p.m. ET

The fall of US crude oil

On July 11, 2016, US crude oil (USO) (OIIL) (BNO) (SCO) closed at $44.76 per barrel. That’s 1.4% below its previous closing price. That’s also 12.6% below its highest level for 2016 of $51.23 per barrel on June 8.

This could be attributed to the small draw in US crude oil inventories and the strengthening of the US dollar (UUP). The dollar index rose 0.96% between July 1 and July 11, 2016. Renewed bearishness in the aftermath of the Brexit vote also led to a fall in oil prices.

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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Oil-weighted 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 correlations of these oil-weighted companies with WTI (West Texas Intermediate) crude oil from June 11 to July 11, 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): 93.3%
  • Bill Barrett (BBG): 89.6%
  • Murphy Oil (MUR): 89.6%
  • Continental Resources (CLR): 82.2%
  • Carrizo Oil & Gas (CRZO): 81.8%
  • Whiting Petroleum (WLL): 81.1%
  • California Resources (CRC): 79.6%

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

  • Vaalco Energy (EGY): 50.4%
  • Northern Oil & Gas (NOG): 60.2%

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

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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