14 Dec

Oil Risk Is Rising: Which Oil-Weighted Stocks to Track

WRITTEN BY Rabindra Samanta

Crude oil

On December 13, 2017, US crude oil (USO) (DBO) January futures fell 0.9% and closed at $56.6 per barrel. Record US crude oil production based on weekly data and a buildup of 5.7 million barrels in the gasoline inventory for the week ending December 8, 2017, could be pulling oil prices down.

Oil Risk Is Rising: Which Oil-Weighted Stocks to Track

In the week ending December 8, 2017, US crude oil production was at 9.78 MMbpd (million barrels per day)—73,000 barrels per day more than a week ago. The rise was the sharpest since October 27, 2017. The EIA’s STEO (Short-Term Energy Outlook) forecast that US crude oil production would be ~9.2 MMbpd in 2017 and 10 MMbpd in 2018. So, strong US crude oil production could reduce the bullish sentiments for oil prices.

On December 6–13, 2017, US crude oil January futures rose 1.1%. Between these two dates, the S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA) rose 1.3% and 1.8%. However, oil breaking below $57 could harm these equity indexes.

Correlations of oil-weighted stocks

The oil-weighted stocks that could be volatile with oil’s movement, according to the correlations with oil prices in the last five trading sessions, are:

  • Whiting Petroleum (WLL) at 99.3%
  • Concho Resources (CXO) at 97.1%
  • SRC Energy (SRCI) at 91.1%
  • California Resources (CRC) at 85.9%
  • Kosmos Energy (KOS) at 85.1%

The oil-weighted stocks that might deviate from oil’s movement, according to the correlations with oil prices in the last five trading sessions, are:

  • Callon Petroleum (CPE) at 44.3%
  • Occidental Petroleum (OXY) at -25.9%

In Part 2, we’ll discuss the returns of these oil-weighted stocks. All of these oil-weighted stocks have been taken from the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) with at least 60.0% production mixes in oil.

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