US crude oil prices

On January 10, 2018, US crude oil (USO)(DBO) February futures closed at $63.57 per barrel—1% above the previous closing price, and their highest closing level since December 10, 2014.

Oil-Weighted Stocks Could Capture US Crude Oil’s 3-Year High

A fall of 4.9 MMbbls (million barrels) in US crude oil inventories for the week ended January 5, 2018, supported oil prices. The magnitude of the fall was sufficient to reduce the gap between US crude oil inventories and their five-year average on a week-over-week basis—a bullish factor for oil prices. The EIA (US Energy Information Administration) released this data on January 10. Moreover, US crude oil production also fell by 290,000 barrels per day for the week—the biggest fall since October 27, 2017, based on the EIA’s weekly data.

In the trailing week, the S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA) gained 1.3% and 1.8%. US crude oil prices were up 3.1%. A rise in oil prices could support the energy constituents of these equity indexes.

Oil-weighted stocks

The oil-weighted stocks that could gain from US crude oil futures at their three-year peak, based on their correlations of the last five trading sessions with oil prices, are as follows.

  • Whiting Petroleum (WLL) at 83.1%
  • Oasis Petroleum (OAS) at 74.7%
  • California Resources (CRC) at 53.4%
  • SRC Energy (SRCI) at 48.4%
  • Denbury Resources (DNR) at 45.2%

These oil-weighted stocks are part of a list that was collected from the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). These stocks operate with at least 60% production mixes in oil.

The oil-weighted stocks that could have avoided oil’s gains in the seven calendar days up to January 10, based on their correlations over this period with oil prices, are as follows.

  • Hess Corporation (HES) at -85.1%
  • Concho Resources (CXO) at -94.1%

In the next part of this series, we’ll focus on the returns of all these oil-weighted stocks.

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