Why Certain Oil-Weighted Stocks Outperformed Last Quarter

Rabindra Samanta - Author

Nov. 20 2020, Updated 2:33 p.m. ET

Oil-weighted stocks’ returns

In the fourth quarter, our list of oil-weighted stocks fell 44.2%—compared to the 39.7% fall in US crude oil February futures. On average, our list of oil-weighted stocks underperformed US crude oil prices. The fall in US equity indexes in the past month might have made oil’s fall sharper. Market expectations of supply outpacing demand since November could have impacted oil-weighted stocks’ underperformance.

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Below are the oil-weighted stocks that fell the least in the last quarter:

  • ConocoPhillips (COP) fell 21.6%.
  • Occidental Petroleum (OXY) fell 25.3%.
  • Pioneer Natural Resources (PXD) fell 26.2%.

According to ConocoPhillips’s management, the company requires sustaining capital of $3.5 billion per year in case of flat production between 2018 and 2020. The funding is easily achievable from the company’s cash flow from operations even if oil is at $40 per barrel. Occidental Petroleum is confident that it will continue to pay dividends and maintain the production status quo even with WTI crude oil at $40. Since US crude oil’s 12-year low in February 2016, ConocoPhillips has risen ~110.6%—the third-highest gainer on our list.


Below is the list of the oil-weighted stocks that fell the most in the last quarter:

  • Oasis Petroleum (OAS) fell 61.2%.
  • California Resources (CRC) fell 65.1%.
  • Denbury Resources (DNR) fell 72.2%.

Denbury Resources had the highest correlation with US crude oil prices during this period, which we discussed in the previous part. California Resources falls under the top five oil-weighted stocks with the highest correlation with oil prices in the fourth quarter. The factors that we discussed in Part 1 could make these stocks more vulnerable.

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


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