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Which Oil-Weighted Stocks Could Outperform Oil’s Downturn?

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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% in crude oil (USO) (USL). These stocks also make up part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

From March 6, 2017, to March 13, 2017, the basket of these stocks fell 6.3%—compared to a 9% fall in WTI (West Texas Intermediate) crude oil futures contracts for April 2017 delivery during the same period.

During this period, Kosmos Energy (KOS) fell 0.5%, Occidental Petroleum (OXY) fell 1.7%, and Continental Resources (CLR) fell 2.5%. These three stocks outperformed their peers.

Carrizo Oil & Gas (CRZO), Whiting Petroleum (WLL), and California Resources (CRC) fell 10.4%, 13.2%, and 16.7%, 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 (SPY) (IVV) movements.

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Performance of crude oil and oil-weighted stocks

On February 11, 2016, US crude oil touched a 12-year low. From February 11, 2016, to March 13, 2017, US crude oil active futures contracts rose 84.7% on a closing price basis. Our basket of equally weighted upstream stocks rose 81.9% during the same period.

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

  • Oasis Petroleum (OAS) – 208.2%
  • California Resources (CRC) – 149.7%
  • Denbury Resources (DNR) – 138.8%

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

  • Hess (HES) – 25.7%
  • Carrizo Oil & Gas (CRZO) – 23.6%
  • Occidental Petroleum (OXY) – 0.3%

So, crude oil–weighted stocks have underperformed oil since its February 11, 2016, low but outperformed 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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