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How Are Oil-Weighted Stocks Reacting to Crude Oil?

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Crude oil

On November 14, 2016, the WTI (West Texas Intermediate) crude oil (UWTI) (USO) (OIIL) (USL) (SCO) (DWTI) December contracts closed at $43.32 per barrel. The contracts were ~0.2% lower than the previous closing price. Oil prices continued the downturn. Doubts around OPEC’s (Organization of the Petroleum Exporting Countries) deal and Donald Trump’s aggressive energy policy fueled supply glut concerns among traders.

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 October 14 to November 14, 2016. Oil-weighted stocks that are correlated strongly with crude oil over the last month include:

  • Hess Corporation (HES) – 77.8%
  • Continental Resources (CLR) – 74.2%
  • Diamondback Energy (FANG) – 73.3%
  • Whiting Petroleum (WLL) – 70.6%
  • Denbury Resources (DNR) – 65.8%
  • Oasis Petroleum (OAS) – 63.6%
  • California Resources (CRC) – 63.4%

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

  • RSP Permian (RSPP) – 38.2%
  • Murphy Oil (MUR) – 35.6%

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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