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Will Energy Stocks Outperform Crude Oil?


Nov. 15 2016, Published 7:29 a.m. ET

Oil-weighted stocks and crude oil

In this part of the series, we’ll look at the returns of an equally weighted basket of oil stocks that operate with a production mix of at least 60% crude oil (USL) (OIIL) (UWTI) (DWTI). They’re also part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

From November 7 to November 14, 2016, these stocks rose 1.2% compared to a 3.5% fall in West Texas Intermediate crude oil futures contracts for December delivery during the same period.

During this period, Synergy Resources (SYRG) rose 11.7%. California Resources (CRC) and Denbury Resources (DNR) rose 9.8% and 4.9%, respectively. These three stocks outperformed their peers.

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On the other hand, Concho Resources (CXO), Occidental Petroleum (OXY), and Continental Resources (CLR) returned -3.1%, -3.5%, and -4.2%, respectively, during the same period. They underperformed their peers. The returns for these stocks are also adjusted for dividends. Continental Resources had one of the highest correlations with US crude oil in the group in the past month. We discussed the correlations in the previous part.

In last five days, energy stocks outperformed crude oil. The average rise in energy stocks against a 3.5% fall in oil prices coincides with Trump’s aggressive energy policy. His policy could boost US-based oil and gas companies’ revenues. Also, optimism in the broader market helped boost the battered energy sector.

In the previous part of this series, we saw how crude oil can impact some of these oil stocks. The performances of these oil-weighted stocks could also be related to their earnings and the market’s expectation for their future prospects.

Performance of oil-weighted stocks and crude oil since 2016 lows

On February 11, 2016, US crude oil touched a 12-year low. From February 11 to November 14, 2016, US crude oil active futures contracts rose 65.3% on a closing price basis. Our basket of equally weighted upstream stocks rose 76.6% during this period. Below are the returns of some upstream companies during this period.

Stocks that outperformed their peers during this period include the following:

  • Denbury Resources – 168%
  • Oasis Petroleum (OAS) – 162%
  • Continental Resources – 140.8%

Stocks that underperformed their peers during this period include the following:

  • Hess Corporation (HES) – 21.8%
  • Kosmos Energy (KOS) – 14.8%
  • Occidental Petroleum – 1.1%

So, crude oil–weighted stocks outperformed crude oil in the last five trading sessions and also since oil’s 2016 low in February. In the next part of this series, we’ll see how strongly natural gas prices impact natural gas–weighted stocks.


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