How These 4 Stocks Track Oil’s Low: Exxon Mobil Corporation (XOM), Halliburton Company (HAL), Chesapeake Energy Corporation (CHK)

Oil just hit its lowest point this year.  Closing at $91.02 per barrel, oil prices are still up 17.8% from their 52-week low of $77.28.  However, does the downtick in oil represent a new downtrend?

Oil, which is traded as an ETF through the United States Oil Fund LP (NYSEARCA:USO) ETF, largely tracks the S&P 500 in general price direction.  Of course both assets rise or fall in different percentages, but largely both have fallen under the umbrella of the “risk on” and “risk off” trades.  However, I think it’s possible that oil and the broad markets could diverge, with the S&P hovering at or just above 1500 and oil dropping further.

The reason is because the markets are being buoyed by free money from the Fed, while oil typically follows supply and demand characteristics that are heavily influenced by OPEC.  Loose monetary policy definitely influences oil, but the point I’m trying to make is that, unlike other commodities like gold, actions in the Middle East can affect oil prices independent of the Fed.

Should oil prices and the broad stock market diverge, it makes sense to get a basic understanding of how energy stocks are correlating, or trading in lockstep, with oil.  I ran a correlation analysis for four major oil and gas companies to see how they currently correlate with the United States Oil ETF.

The scale ranges from -1.0 for a perfect negative correlation to +1.0 for a perfect positive correlation.  Finally, I used the past 20 days trading days in the study instead of the default 10 days in order to obtain a smoother data set.  Here are the findings.

1. BP plc (ADR) (NYSE:BP)

Correlation: .839

What Could Move the Stock

BP appears to have emerged from its 2010 oil spill in decent financial shape.  Any additional lawsuits could move the stock, but BP has already paid out $10.17 billion to businesses, individuals, and the government.  You can read more about BP’s payouts here.

I’m impressed with how the company tried to take charges as quickly as possible, so that its stock could recover in the long-term.  Also, I like that BP has a 5.3% dividend, which would only increase if the stock falls in price.

2. Chesapeake Energy Corporation (NYSE:CHK)

Correlation: .556

What Could Move the Stock

Chesapeake Energy Corporation (NYSE:CHK) is highly leveraged and needs to clean up its balance sheet.  I wrote about this in my post “Will Someone Please Clean Up These Dirty Balance Sheets?”  Extreme debt is one reason the company is still off its 52-week high of $26.09, despite the market roaring back.  Look for Chesapeake to continue to shore up its finances and to bulk up its corporate governance efforts.