Exxon & Chevron Continue to Rise Although Oil Falls
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The price of oil continues to fall and within two months it declined by nearly $20. This downward trend continues. At the same time, the leading energy companies including ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) didn't seem to be affected by this decline. Let's examine the relation between oil prices and these companies' stock prices. What could explain the recent rise in these energy companies' prices?
During June, the price of WTI fell by over 5.5%; United States Oil (NYSEMKT: USO) price also declined by over 6.5%. Despite the plunge in oil prices in recent weeks, major energy companies’ stocks including ExxonMobil and Chevron didn't seem to be adversely affected by this downward trend. During June ExxonMobil stock rose by 8.1% and Chevron by 5.4%.
This isn't an intuitive result because these energy stock prices are strongly related to the movement of oil prices: during 2012 the linear correlation between the daily percent changes of WTI oil (C1 future) and XOM stock reached 0.50; the linear correlation between WTI oil (C1 future) and Chevron was 0.587. This means the movement of oil's price could explain at best 25% and 34% of XOM's and Chevron's respective stock price changes.
The chart below presents the development of the relationship between Exxon and oil (C1) during the year (up to date). It shows how the recent drop in oil prices didn't coincide with the rise of Exxon's stock price.
One explanation could be the recent rise in the SPDR S&P500 (NYSEMKT: SPY): during June this index rose by 3.5%; further, during the year the linear correlation between the S&P500 and Exxon is 0.7 and between the S&P500 and Chevron it's 0.72. This strong relationship is likely to be among the key factors in pulling up these energy company stocks during recent weeks. The chart below shows the moving linear correlation between the S&P500 and Exxon (20 days) during recent months.
Another explanation of the rally in these energy stocks might be the recent rise in natural gas prices: during the month the price of United States Natural Gas (NYSEMKT: UNG) rose by 4.1%. But since natural gas pricing is very weakly correlated with these energy stock prices (the linear relation is only 0.11 with XOM and 0.16 with Chevron) these relationships couldn't fully explain such a sharp rise in XOM and Chevron.
Let's examine the recent news related to these companies that could also explain the rise in the companies stocks:
Exxon Mobil Corporation
Exxon Mobil said last week it will start drilling oil in Siberia during 2013 along with state-run OAO Rosneft. This agreement is part of Exxon's pledge to spend nearly $3.2 billion in order to study and drill for some of the world’s largest resources in hard, unexplored provinces in Russia’s deep-water Black Sea and Arctic Kara Sea. This recent collaboration could translate into growth.
Chevron Corporation
One of the company's subsidiaries managed to close an agreement along with Kosmos Energy to explore offshore drilling in Suriname, South America. This exploration doesn't immediately translate to profits, but it is another potential growth avenue for Chevron.
Therefore if these companies will continue to seek ways to expand their operations and the S&P500 will continue to rise, then Exxon and Chevron stock prices are likely to remain high even if oil will continue to fall.
This article on Reviewing Chevron and XOM Rally was first published at Trading NRG
For further Reading: Will Chesapeake Continue to Rise? It Depends on Natural Gas
liorc has no positions in the stocks mentioned above. The Motley Fool owns shares of ExxonMobil. Motley Fool newsletter services recommend Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
