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ConocoPhillips Stock Outperformed Crude Oil, Natural Gas Prices

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Jul. 11 2017, Published 7:20 p.m. ET

Crude oil and natural gas prices

At the end of last week, crude oil (USO) prices sharply reversed and were unable to hold onto the gains they’d made earlier in the week. Crude oil prices retreated from their 50-day moving average and fell almost 4%, from $46.04 per barrel to $44.23 per barrel.

Natural gas (UNG) prices also fell ~6% last week, from $3.04 per MMBtu (million British thermal units) to $2.86 per MMBtu.

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ConocoPhillips

Due to falling crude oil (USO) and natural gas (UNG) prices last week, ConocoPhillips’s (COP) stock price fell ~2%, from $43.96 to $43.00. However, COP’s stock price outperformed crude oil and natural gas. On July 3, 2017, ConocoPhillips stock rose ~4%, but it failed to capitalize on this positive start throughout the rest of the holiday-shortened week. Barring its July 3 rise, COP fell on every trading day, eventually closing the week in negative territory.

Recent divestiture

At the end of June 2017, ConocoPhillips announced an agreement with an affiliate of Miller Thomson & Partners to sell its upstream assets in the Barnett Basin for $305 million in cash. This asset sale was part of COP’s production mix strategy. 

According to COP’s strategy, it’s aiming to reduce its exposure to North American natural gas. COP’s Barnett assets have production mix of 45% natural gas (UNG) and 55% natural gas liquids.

Year-to-date, COP has sold assets for a total of more than $16 billion dollars. The company plans to use these proceeds primarily for debt reduction.

Peers

Due to the fall in crude oil and natural gas prices last week, the Energy Select Sector SPDR ETF (XLE) underperformed the SPDR S&P 500 ETF (SPY). SPY rose marginally, whereas XLE fell more than 1% in the week. COP’s peers Murphy Oil (MUR) and Encana (ECA) fell ~4% and ~5%, respectively, during the same period. Like ConocoPhillips, Encana has operations in the Montney formation in Canada.

XLE generally invests at least 95% of its total assets in oil and gas companies. According to the SPDR S&P 500 ETF Trust prospectus, “The Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500® Index.”

In the next article, we’ll take a look at COP’s implied volatility.

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