US crude oil
On January 31, 2018, US crude oil (USO) (DBO) March futures rose 0.4% and closed at $64.73 per barrel. In the week ended January 26, 2018, US crude oil inventories rose by ~6.8 MMbbls (million barrels) compared to the market expectations for a rise of 0.1 MMbbls. However, for the same week, the difference between US crude oil inventories and their five-year average declined by 20 basis points on a week-over-week basis. Moreover, gasoline inventories for the same week also declined by two MMbbls.
Between January 24 and January 31, 2018, the S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA) fell 0.5% and 0.4%, respectively. During this time period, US crude oil futures fell 1.3%. The recent retreat in oil prices could be because of fears related to record US crude oil production that has gripped the oil market lately. In the week ended January 26, 2018, US crude oil production rose to ~9.9 MMbpd (million barrels per day), a new record high based on the EIA’s weekly data. The rise in production could become a concern for the energy stocks in these equity indexes. Moreover, US crude oil monthly production in November 2017 was just above ten MMbpd based on the EIA data released on January 31, 2018.
The oil-weighted stocks that could be in trouble if we see a retreat in oil prices based on the trailing week correlations with US crude oil prices are as follows:
- Hess Corporation (HES): 96.5%
- Occidental Petroleum (OXY): 95.8%
- Continental Resources (CLR): 94.8%
- Murphy Oil (MUR): 91.8%
- Kosmos Energy (KOS): 90.7%
These five oil-weighted stocks closed in the red in the seven calendar days to January 31, 2018.
The oil-weighted stocks that had the least correlation with US crude oil futures in the trailing week are:
All of the oil-weighted stocks discussed in this article operate with a minimum 60% production mixes in oil and belong to the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).