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Oil-Weighted Stocks and Crude Oil: Are They Diverging?

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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 production mixes of at least 60.0% crude oil (USO) (OIIL). These stocks also make up part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

From January 23, 2017, to January 30, 2017, the basket of these stocks fell 2.4%—compared to a 0.2% fall in WTI (West Texas Intermediate) crude oil futures contracts for March 2017 delivery during the same period.

During this period, California Resources (CRC) rose 3.4%, Concho Resources (CXO) rose 2.1%, and Callon Petroleum (CPE) rose 1.4%. These three stocks outperformed their peers.

Whiting Petroleum (WLL), Denbury Resources (DNR), and Murphy Oil (MUR) fell 8.1%, 8.2%, and 9.2%, respectively, during the same period. These stocks underperformed their peers.

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

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

On February 11, 2016, US crude oil touched a 12-year low. From February 11, 2016, to January 30, 2017, US crude oil active futures contracts rose 100.8% on a closing price basis. Our basket of equally weighted upstream stocks rose 110.8% during the same period.

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

  • California Resources – 250.6%
  • Oasis Petroleum – 227.3%
  • Denbury Resources – 227.2%

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

  • Diamondback Energy (FANG) – 51%
  • Hess – 41.2%
  • Occidental Petroleum (OXY) – 7.0%

So, crude oil–weighted stocks have outperformed oil since its February 2016 low, but underperformed crude oil in the trailing week.

In the next part of this series, we’ll see how natural gas prices impact natural gas–weighted stocks.

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