XOP has higher volatility than XLE
E&P (exploration & production) stocks are undoubtedly the most volatile in the energy value chain due to their direct exposure to energy commodity prices. These companies hedge a portion of their output with derivative contracts. However, they still have higher exposure compared to the midstream, downstream, and the integrated energy sectors. Midstream energy stocks mostly operate like a toll road business and generally have minimal direct commodity price exposure. Interestingly, integrated energy stocks generally have a natural hedge to the movement in commodity prices and are the least volatile.
The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) has a 200-day volatility of 27.6% as of August 29. In comparison, the Alerian MLP ETF (AMLP) and Energy Select Sector SPDR ETF (XLE) had a 200-day volatility of 21.6% and 19.1%, respectively. ExxonMobil (XOM) and Chevron (CVX), which are the top two constituents of XLE, have a 200-day volatility of 19.6% and 21.5%.
Least volatile E&P stocks
Investors like to stay away from stocks that have high volatility. Whiting Petroleum (WLL) and Chesapeake Energy (CHK) are among the E&P stocks that have a 200-day volatility above ~50%. In this series, we’ll look at the five least volatile E&P stocks:
- Occidental Petroleum (OXY)
- EOG Resources (EOG)
- ConocoPhillips (COP)
- Cabot Oil & Gas (COG)
- Pioneer Natural Resources (PXD)
Out of these top five least volatile E&P stocks, four are crude oil weighted and one is natural gas weighted. We have considered the E&P stocks that have an average three-month volume above one million. All these E&P stocks have lower volatility compared to the SPDR S&P Oil & Gas Exploration & Production ETF.
In the next article, we’ll look into the least volatile E&P stock, Occidental Petroleum.