Why Markets Love BP Compared to XOM, CVX, and Shell



Integrated energy stocks have been rising in the fourth quarter. In contrast, the stocks fell in the previous quarter. While Shell (RDS.A) and BP (BP) have risen 1.7% and 3.7%, ExxonMobil (XOM) and Chevron (CVX) have risen 1.2% and 1.1%, respectively.

The trend changed due to higher oil prices, recouped equity markets, and better-than-expected results.

Article continues below advertisement

BP outperforms SPY

The rise in energy stocks is in line with the equity market’s performance. The S&P 500 Index (SPX) has risen 3.5% in the current quarter. So, BP stock has outperformed the market. However, ExxonMobil, Shell, and Chevron stocks have underperformed the market. The S&P 500 Index has risen to new highs in the quarter.

BP’s outperformance is likely due to its high correlation with crude oil. Although all four energy stocks show a positive relationship with the S&P 500 Index (SPY) and WTI, BP’s correlation with oil is the strongest among its peers.

While ExxonMobil and Chevron’s correlation coefficients with SPY stands at 0.69 and 0.60, Shell and BP’s coefficients stand at 0.54 and 0.44. The data show these stocks’ strong positive correlations with SPY. ExxonMobil’s 0.69 coefficient means that the stock has moved in line with SPY 69% of the time in the past year.

BP has the highest correlation coefficient of 0.60 with WTI, followed by Shell at 0.57. However, ExxonMobil and Chevron have relatively low correlations of 0.51 and 0.46, respectively.

So, BP’s strong relationship with WTI boosted the stock. Also, the lower-than-expected fall in the company’s earnings supported the stock.

Article continues below advertisement

S&P 500 Index touches record highs

Optimism surrounding US-China trade talks mainly led to the S&P 500 Index’s record high. In the previous quarter, escalating tensions between the countries made the market volatile. However, the expectation of a trade deal is boosting the market.

The Fed’s interest rate cut also supported the market. Expansionary policy measures will support the US economy amid geopolitical pressures.

Also, markets are being prepped by corporate earnings. Most of S&P 500 companies have posted better-than-expected performances. Most analysts expected low earnings. To learn more, read S&P 500 Index Nears Record High amid Earnings Season.

Higher oil prices boost integrated energy stocks

Trade deal prospects have supported oil prices. So far, WTI has risen 5.5% in the fourth quarter. Energy stocks have also been rising due to lifted sentiments towards oil prices.

However, oil fundamentals remain weak. Demand growth is shrinking and the supply is rising, which results in an oversupplied oil market. The IEA expects a supply glut in 2020. According to a CNBC report, Singapore International Energy Week’s Keisuke Sadamori said, “Unless other things change, we will see a surplus probably, unless there is very strong demand growth recovery.”

BP and peers posted better-than-expected earnings

ExxonMobil and Chevron witnessed lower earnings in their third-quarter results. While the reported EPS shows a different picture, all of the companies’ adjusted EPS is higher than the estimates.

Analysts were pleased with the companies’ earnings beat. Between ExxonMobil and Chevron, the latter had a lower decline in earnings. However, both companies saw lower profits in all of the segments. Read ExxonMobil or Chevron: Which Performed Better in Q3? to learn more.

Shell and BP also posted lower earnings. However, the higher profits in Shell’s integrated gas and downstream segments were a positive surprise. Analysts expected a fall in both of these segments due to lower oil, gas, and LNG prices and weaker refining and chemical margins.

Shell, with the help of trading activities in both segments and wider fuel marketing margins, saw a rise in the earnings in these segments. Meanwhile, BP’s earnings fell across its business segments. Read Has Shell Performed Better than BP in Q3? to learn more.


More From Market Realist