The following oil-weighted stocks could be sensitive to oil’s price movements based on their correlations with US crude oil August futures on July 3–10:
- Denbury Resources (DNR) at 97.5%
- Carrizo Oil & Gas (CRZO) at 96.3%
- Occidental Petroleum (OXY) at 96.2%
- Oasis Petroleum (OAS) at 95.2%
- Whiting Petroleum (WLL) at 94.2%
All of these oil-weighted stocks are part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). They operate with 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.
In the trailing week, US crude oil August futures rose 5.4%. The magnitude of the correlation shows oil’s significance for these energy stocks. If US crude oil rises more, it might please investors in the stocks discussed above based on the correlations. Except for Occidental Petroleum, the oil-weighted stocks shown above outperformed US crude oil prices. Natural gas prices rose 6.7%—a boost for the energy space.
On Wednesday, the EIA reported a decline of ~9.5 MMbbls (million barrels) in US crude oil inventories—much larger than a Reuters poll for a decline of 2.9 MMbbls for the week ending July 5. Gasoline inventories fell by 0.35 MMbbls more than a Reuters poll for a decline of 1.1 MMbbls. The inventories fell more than the market expectations, which pushed US crude oil up 4.5% on Wednesday.
Less affiliation to oil prices
Among the oil-weighted stocks, Apache (APA) had a correlation of 47% with US crude oil prices—the lowest but significant among oil-weighted stocks. On July 8, Goldman Sachs (GS) reduced its target price on Apache by $9.5 to $27. On the same day, the stock prices fell 2.5% despite almost flat oil prices. Apache operates with a production mix of ~63% in oil price-linked commodities. Last month, UBS and BMO each reduced their target prices on Apache by $3 to $27 and $30, respectively. On Wednesday, Apache’s stock prices closed at $27.47.
Pioneer Natural Resources (PXD) had the second-lowest correlation with US crude oil prices. On Tuesday, J.P. Morgan reduced the target price on Pioneer Natural Resources by $12 to $166. On Monday, Goldman Sachs reduced its target price by $16 to $181. On the same day, Suntrust Robinson reduced its target price on Pioneer Natural Resources by ~22%. Suntrust Robinson changed its rating from “buy” to “hold.” On Tuesday, Pioneer Natural Resources’ stock prices closed at $146.60. On August 6, Pioneer Natural Resources is scheduled to report its second-quarter earnings results. Based on analysts’ consensus estimates, the company’s EPS might rise 18.6% on a sequential basis in the second quarter.
Oil-weighted stocks’ returns
On July 3–10, our list of oil-weighted stocks rose 4.3%—compared to the 5.4% rise in US crude oil August futures. On average, our list of oil-weighted stocks underperformed US crude oil prices.
Let’s take a look at the oil-weighted stocks that rose the most in the last five trading sessions:
- California Resources (CRC) rose 9.4%.
- Denbury Resources rose 8.3%.
- Callon Petroleum (CPE) rose 7.5%.
These three stocks had over a 77% correlation with US crude oil prices. Denbury Resources had the highest correlation with US crude oil prices. In the previous quarter, the company’s production mix in oil was ~96.9%.
Now, we’ll discuss the oil-weighted stocks that underperformed their peers and US crude oil prices in the last five trading sessions:
- ConocoPhillips (COP) rose 1.2%.
- Pioneer Resources rose 0.7%.
- Apache rose 0.7%.
Pioneer Natural Resources and Apache have the lowest correlation with US crude oil prices among these oil-weighted stocks. On Tuesday, J.P. Morgan reduced its target price on ConocoPhillips by $3 to $80. On Wednesday, ConocoPhillips’s stock prices closed at $61.21. Last month, Mizuho increased its target price on ConocoPhillips by $6 to $80 and changed its rating from “neutral” to “buy.” On June 25, ConocoPhillips closed at $59.77.
On July 1, the Brent-WTI spread fell to $5.97—the lowest level since August 21 the previous year. ConocoPhillips’s net income sensitivity with every $1 change in Brent/Alaskan North Slope crude oil prices per barrel is $150 million. The company’s same relationship with WTI crude oil is ~$30 million–$40 million. So, a lower Brent-WTI spread might have kept a lid on ConocoPhillips’s stock prices.