Crude Oil’s Comeback: Analyzing Oil-Weighted Stocks

On August 15, 2016, US crude oil (USO) (OIIL) (USL) (SCO) contracts for September delivery closed at $45.74 per barrel—2.8% above its previous closing price. It’s also 10.7% below its highest level for 2016 of $51.23 per barrel on June 8.

Crude oil prices recovered on the hope that OPEC (Organization of the Petroleum Exporting Countries) will hold a meeting in September to discuss potential solutions to current low prices. Also, Saudi Arabia’s energy minister’s statement hinting at some action by OPEC to support prices and a bullish IEA report last week helped support prices.

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

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. Below are the correlations of these oil-weighted companies with West Texas Intermediate crude oil from July 15 to August 15, 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:

• Oasis Petroleum (OAS) – 82%
• Carrizo Oil & Gas (CRZO) – 79.1%
• Kosmos Energy (KOS) – 77.8%
• Abraxas Petroleum (AXAS) – 76.8%
• Whiting Petroleum (WLL) – 75.6%
• Murphy Oil (MUR) – 74.9%
• RSP Permian (RSPP) – 73.8%

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

• Vaalco Energy (EGY) – 17.6%
• Halcón Resources (HK) – 16.5%

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.