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How Devon Energy Will Benefit from Higher Crude Oil Prices


Jan. 24 2017, Updated 8:53 a.m. ET

Crude oil prices

On November 30, 2016, OPEC (Organization of the Petroleum Exporting Countries) agreed to cut production by 1.2 million barrels per day. Non-OPEC producers, along with Russia, have also agreed to cut production, by 0.6 million barrels per day. This was the first crude oil (USO) production cut announced by OPEC since 2008. So far, in aggregate, these producers have reduced output by almost 1.5 million barrels per day since the production cut agreement came into effect on January 1, 2017. This move has a potential to reduce supply-side excesses in world oil markets.

Due to the announced production cut by OPEC and non-OPEC producers, crude oil prices have been following an upwards trend. Oil prices have increased from $45.23 per barrel to $53.22 per barrel.

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Why Devon Energy is rising

Devon Energy (DVN) has reacted positively to rising crude oil prices. DVN stock has risen from $42.11 to $46.26 since the OPEC production cut agreement. According to Devon’s 3Q16 earnings call, at $55 per barrel for WTI (West Texas Intermediate) crude oil and $3 per MMBtu (million British thermal units) for Henry Hub natural gas pricing, Devon Energy plans to steadily ramp up activity over the next several quarters to as many as 15 to 20 rigs by the end of 2017. Devon Energy’s production mix contains ~44% crude oil.


Even though Devon’s stock price has been rising since the OPEC agreement, it is slightly underperforming crude oil. This performance can be attributed to declining natural gas prices since the start of 2017 and sector-wide underperformance, as evident by the SPDR S&P Oil and Gas Exploration & Production ETF’s (XOP) rise of 9.6%.

Peers Pioneer Natural Resources (PXD) and ConocoPhillips (COP) have risen ~7% and ~14%, respectively, since November 30, 2016. Southwestern Energy (SWN) has fallen ~18%. Let’s now check DVN stock’s possible trading range for this week based on its implied volatility.


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