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Which Oil-Weighted Stocks Lead in the Correlation with Crude Oil?

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Jul. 26 2016, Published 10:07 a.m. ET

US crude oil

On July 25, 2016, US crude oil (USO) (OIIL) (USL) (SCO) contracts for September delivery closed at $43.13 per barrel. That’s 2.4% below its previous closing price. That’s also 15.8% below its highest level for 2016 of $51.23 per barrel on June 8.

Lately, crude oil has been weak due to renewed supply glut concerns. In this series, we’ll take a close look at the correlations between crude oil–weighted stocks and crude oil (USO) (OIIL) (SCO). We’ll also look at the correlations 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% in crude oil (USO) (OIIL) (SCO). Below are the correlations of these oil-weighted companies with WTI (West Texas Intermediate) crude oil from June 25 to July 25, 2016. You can also see these in the above table.

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

  • Oasis Petroleum (OAS) – 89.9%
  • Continental Resources (CLR) – 86.7%
  • RSP Permian (RSPP) – 86.6%
  • Whiting Petroleum (WLL) – 83.5%
  • Synergy Resources (SYRG) – 82.6%
  • Concho Resources (CXO) – 82.2%
  • Carrizo Oil & Gas (CRZO) – 80.7%

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

  • Northern Oil & Gas (NOG) – 54.4%
  • Bonanza Creek Energy (BCEI) – 44.9%

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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