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Strong Crude Oil Prices Supported WLL: Can the Momentum Continue?

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Mar. 29 2018, Updated 5:32 p.m. ET

Whiting Petroleum stock

Whiting Petroleum (WLL) stock surged in the week ended March 23, 2018, closing ~9.6% higher. Strong crude oil prices led to the upward momentum seen by WLL stock last week. On March 21, 2018, crude oil prices crossed $65.0 per barrel. To learn more about crude oil price movements, please read Market Realist’s US Crude Oil Is near a 3-Year High.

On March 21, the FOMC (Federal Open Market Committee) increased the federal funds rate by 25 basis points to a target range of 1.50%–1.75%. Following this news, the US dollar dropped. A decline in the US dollar has an inverse relationship with crude oil prices. A decline in the dollar makes dollar-denominated commodities like crude oil cheaper for foreign investors and therefore, more attractive.

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On March 21, WLL stock rose 9.6%. Year-over-year, WLL stock has fallen ~8.1%. In comparison, the Energy Select Sector SPDR ETF (XLE), has declined ~4.3% year-over-year. Both XLE and WLL stock have underperformed the broader market ETF (SPY). The S&P 500 SPDR ETF has increased ~9.0% in the same period.

Strong crude oil prices: WLL’s ally

WLL is projecting approximately $200.0 million of free cash flow in 2018 at $55.00 NYMEX oil prices. Given that crude oil prices are currently trading over $65.00 per barrel, sustained increase in crude oil prices could be an unexpected bonus.

WLL’s cash flow from operations in 4Q17 was $287.0 million, $116.0 million higher than its 4Q17 capex. Whiting Petroleum’s capex guidance for fiscal 2018 is $750.0 million, versus $912.0 million capex in fiscal 2017. 

Whiting Petroleum’s fiscal 2018 production guidance is ~9.0% higher than its fiscal 2017 production. In contrast, its production guidance for 2017 was 10.6% lower compared to its fiscal 2016 production levels.

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