US crude oil
On February 6, 2017, WTI (West Texas Intermediate) crude oil (USO) (OIIL) (USL) (SCO) March futures closed at $53.01 per barrel, which is ~1.5% lower than the previous closing price. US crude oil March futures rose 0.7% on a closing price basis in the week ending February 6, 2017.
Oil prices fell because of growing concerns about rising US crude oil production and an increase in stockpiles at Cushing, Oklahoma. The US oil rig count rose by 17 to 583 for the week ending on February 3, 2017. Rising rigs mean higher production, which could have a negative impact on crude oil prices. Also, a report from Genscape showed a rise of one million barrels in crude oil inventories at Cushing, Oklahoma. Last week, optimism around OPEC’s deal supported crude oil prices.
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.
First, let’s look at the correlations for 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 the top five oil-weighted companies that have the highest correlation with WTI crude oil from January 6, 2017, to February 6, 2017.
- Carrizo Oil & Gas (CRZO) – 73.4%
- RSP Permian (RSPP) – 65.4%
- Callon Petroleum (CPE) – 63.2%
- Oasis Petroleum (OAS) – 60.9%
- Continental Resources (CLR) – 54.2%
Oil-weighted stocks in XOP that had the lowest correlations with crude oil during this period were:
If you’re bearish on crude oil, particularly due to rising US oil production and inventories, you might want to exclude stocks that have high 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.