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What Are the Right Stocks for Crude Oil Bulls?

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Crude oil

On October 3, 2016, WTI (West Texas Intermediate) crude oil (UWTI) (USO) (OIIL) (USL) (SCO) (DWTI) November contracts closed at $48.81 per barrel. The contracts were ~1.2% above the previous closing price. Oil prices gained due to the announcement of OPEC’s deal last week.

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.

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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. Below are the correlations of these oil-weighted companies with WTI crude oil from September 3 to October 3, 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:

  • Murphy Oil (MUR) – 89.9%
  • Oasis Petroleum (OAS) – 88.2%
  • Continental Resources (CLR) – 85.5%
  • Whiting Petroleum (WLL) – 85%
  • Hess Corporation (HES) – 84.7%
  • Occidental Petroleum (OXY) – 83.8%
  • Carrizo Oil & Gas (CRZO) – 83.7%

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

  • Callon Petroleum (CPE) – 73.7%
  • Diamondback Energy (FANG) – 72.1%

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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