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Doubts over OPEC’s Deal: Which Oil-Weighted Stocks to Consider?

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US crude oil

On January 13, 2017, WTI (West Texas Intermediate) crude oil (USO) (OIIL) (USL) (SCO) February contracts closed at $52.37 per barrel, ~1.2% lower than their previous closing price. US crude oil February futures fell 3.0% on a closing price basis in the week ended January 13, 2017.

January 16, 2017 was a market holiday in the US. WTI crude oil futures were not traded on the NYMEX on the day. Brent crude oil active futures fell 0.14% on January 16, 2017.

Last week, oil prices fell because of growing doubts about the implementation of the OPEC production cut deal. If OPEC and non-OPEC countries fulfill the terms of the deal, it could reduce the global crude oil supply by 1.8 MMbpd (million barrels per day).

However, recent data suggests that Iran and Iraq have increased their oil supplies. Libya also has plans to increase its oil production. Plus, rising US crude oil production is an important factor affecting oil prices.

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In this series

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.

Oil-weighted stocks

First, let’s look at some upstream companies that are part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and operate with production mixes of at least 60.0% in crude oil.

Below are the correlations of these top five oil-weighted companies that have the highest correlation with WTI crude oil from December 13, 2016, to January 13, 2017.

  • California Resources (CRC) – 59.8%
  • Callon Petroleum (CPE) – 58.0%
  • Continental Resources (CLR) – 52.0%
  • RSP Permian (RSPP) – 48.6%
  • Murphy Oil (MUR) – 47.3%

Oil-weighted stocks in XOP that had the lowest correlations with crude oil during this period included the following:

  • Hess Corporation (HES) – 14.9%
  • Kosmos Energy (KOS) – 10%

If you’re bearish on crude oil, particularly about the success of OPEC and non-OPEC producers’ deal, you might want to take a look at stocks that have low correlations with crude oil in order to realign your portfolio.

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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