US crude oil
On March 21, 2018, US crude oil May futures rose 2.6% and closed at $65.17 per barrel, which is ~1.5% below the highest closing level of $66.14 per barrel in three years hit on January 26, 2018.
On March 21, 2018, the EIA (U.S. Energy Information Administration) reported the oil inventory data. For the week ending March 16, 2018, US crude oil inventories unexpectedly fell by 2.6 MMbbls (million barrels)—compared to market expectations of a rise of the same magnitude. The fall pushed the difference between US crude oil inventories and their five-year average or the inventories spread into the negative zone for the first time since 2011. When the inventories spread is in the negative zone, it could be a bullish factor for oil prices.
In the last trading session, the US dollar fell 0.7%. On the same day, the FOMC (Federal Open Market Committee) decided to increase the federal funds rate to a target range of 1.5%-1.75%. A fall in the US dollar could boost US crude oil demand because the import cost for oil importing counties falls when the dollar falls. The fall in the US dollar could be a positive development for oil prices.
However, US crude oil production rose by 26 thousand barrels per day to a new weekly record of 10.4 million barrels per day for the week ending March 16, 2018. Rising US crude oil production could hold the upside in oil prices.
The oil-weighted stocks from the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) that could benefit from the upside in US crude oil prices based on the correlations with US crude oil in the past five trading sessions were:
- Diamondback Energy (FANG) – 96.5%
- Callon Petroleum (CPE) – 94.1%
- Murphy Oil (MUR) – 91.5%
- Concho Resources (CXO) – 91.3%
- RSP Permian (RSPP) – 91.2%
None of the oil-weighted stocks on our list from XOP had less than an 80% correlation with US crude oil futures during this period. In the seven calendar days to March 21, 2018, US crude oil May futures rose 6.8%. All of the oil-weighted stocks except RSP Permian (RSPP) closed in the green during this period. In the next part, we’ll discuss these oil-weighted stocks’ returns.
All of these oil-weighted stocks operate with a production mix of at least 60% in liquids based on their latest quarterly production data. Liquids include crude oil, condensates, and natural gas liquids.