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Oil at a 3-Year High: Oil-Weighted Stocks that Could Gain

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Apr. 12 2018, Published 1:07 p.m. ET

US crude oil

On April 11, 2018, US crude oil May futures rose 2.0% and closed at $66.82 per barrel—the highest closing level for US crude oil active futures since December 2, 2014. On the same day, Brent crude oil June futures closed at $72.06 per barrel—the highest closing level for Brent crude oil active futures since December 1, 2014.

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Geopolitical tensions

On April 9, 2018, the possibility of a US missile strike on Syria escalated geopolitical tensions in the Middle East. On April 11, Saudi Arabia’s defense authorities intercepted a missile over Riyadh. The rising geopolitical tensions in the Middle East have pushed oil to more than a three-year high.

On April 11, 2018, the S&P 500 Index fell 0.6%. The rising tensions that pushed oil higher also dragged equity markets lower.

Inventory data

In the week ended April 6, US crude oil inventories rose 3.3 MMbbls (million barrels), a surprise against the market’s expected fall of 0.6 MMbbls. The EIA (Energy Information Administration) reported this data on April 11, 2018.

However, the negative difference between US crude oil inventories and their five-year average widened by ten basis points to -2.6% for the week ended April 6, 2018, which is a positive development for oil prices.

Oil-weighted stocks

Between April 4 and April 11, 2018, US crude oil May futures rose 5.4%. The following oil-weighted stocks could follow oil’s rise based on the past five trading sessions’ correlations with US crude oil May futures:

  • Occidental Petroleum (OXY): 93.5%
  • RSP Permian (RSPP): 90.7%
  • Concho Resources (CXO): 88.5%
  • Callon Petroleum Company (CPE): 85.7%
  • WPX Energy (WPX): 84.1%

These oil-weighted stocks are part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). They operate with a production mix of at least 60.0% in liquids based on their latest quarterly production data. Liquids include crude oil, condensates, and natural gas liquids.

With the exception of Carrizo Oil & Gas (CRZO), all of these oil-weighted stocks from XOP have correlations greater than 50.0% with US crude oil May futures in the trailing week. CRZO had a correlation of just 20.9% with US crude oil May futures over this period.

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