uploads/2016/11/Correlation-of-oil-1.png

Energy Stocks Could Ride Higher on an OPEC Deal

By

Updated

Crude oil would trend higher

On November 21, 2016, the WTI (West Texas Intermediate) crude oil (UWTI) (USO) (OIIL) (USL) (SCO) (DWTI) January contracts closed at $48.24 per barrel. The contracts were ~4.1% higher than the previous closing price. Optimism around OPEC’s (Organization of the Petroleum Exporting Countries) deal fueled bullish sentiments among traders and helped oil prices continue their upturn.

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.

Article continues below advertisement

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 October 21 to November 21, 2016. Oil-weighted stocks that are correlated strongly with crude oil over the last month include:

  • Hess Corporation (HES) – 90.1%
  • Continental Resources (CLR) – 82.2%
  • Whiting Petroleum (WLL) – 79.1%
  • Concho Resources (CXO) – 77%
  • Callon Petroleum Company (CPE) – 75.9%
  • Carrizo Oil & Gas (CRZO) – 73.1%
  • Oasis Petroleum (OAS) – 73%

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

  • Murphy Oil (MUR) – 57.5%
  • Synergy Resources (SYRG) – 37.9%

Investors who are bullish on crude oil—particularly given the proximity of OPEC’s crucial meeting—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 crude oil–weighted stocks’ returns compared to crude oil.

Advertisement

More From Market Realist