On October 24, 2016, the WTI (West Texas Intermediate) crude oil (UWTI) (USO) (OIIL) (USL) (SCO) (DWTI) December contracts closed at $50.52 per barrel. The contracts were ~0.6% lower than the previous closing price. Oil prices fell due to growing doubts about the implementation of OPEC’s recent deal.
Price weakness set in following news that Iraq signaled that it wouldn’t participate in OPEC’s planned production cuts. Iraq is the second-largest oil producer among OPEC members. Iraq’s oil output stands at 4.77 million barrels per day.
In this series, we’ll take a 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 WTI crude oil from September 24 to October 24, 2016. You can also see these in the above chart. Oil-weighted stocks that are correlated strongly with crude oil over the last month include:
- Continental Resources (CLR) – 86.2%
- Whiting Petroleum (WLL) – 84.7%
- Concho Resources (CXO) – 84.6%
- Kosmos Energy (KOS) – 84.5%
- Callon Petroleum (CPE) – 82.3%
- California Resources (CRC) – 82.2%
- Murphy Oil (MUR) – 81.2%
Oil-weighted stocks in XOP that had the lowest correlation with crude oil include:
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.