What The Oil Market Can Tell Us About Some Of The Top Energy Stocks

It’s been a strong week for oil. Despite OPEC saying they will continue to increase their production supply, crude futures are back above $70 following a brief slide back to the mid-$60’s at the end of May.

The rise in both oil and oil stocks has energy investors downright giddy, as the sector has become one of the best performers of the year. The Select SPDR Energy ETF XLE trails only the Select SPDR Consumer Discretionary ETF XLY and Select SPDR Technology ETF XLK in terms of year-to-date performance, and has outperformed the S&P 500 Index by 5 percent.

Of course, these funds and the stocks within them are highly correlated to the price of oil. Higher oil is great for companies that exist to sell the commodity, and even better when those companies weren’t expecting prices to rise this high in 2018.

This relationship can often be exploited. The price of oil can absolutely serve as a sign of what’s to come in oil stocks and funds. That said, let’s take a look at what the price of oil is telling us about some of the top energy stocks. The following charts are courtesy of VantagePoint Software, an AI forecasting software.

Oil Futures

The following chart shows the performance of light sweet crude from March 9-June 12. The blue line represents a predicted moving average, and the black is a simple, 10-day moving average.

Clearly the market has entered a downtrend starting on May 22, and the platform is forecasting even more downside into June (as evidenced by the divergence of the two lines).

Chart courtesy of VantagePoint

From May 1-22 the market rose 6.3 percent to a high of $72.9. But you can see that it hit some clear resistance at $73, after which it fell 9 percent to end the month.

Here’s a chart of brent crude futures during May, which essentially shows the same thing albeit with a little less conviction in the downtrend. The red-green bar at the bottom of the chart, a neural index that forecasts short-term strength or weakness, is actually showing that the market could rise slightly at the beginning of June, which is exactly what happened.

Chart courtesy of VantagePoint

The following charts show the performance of several top energy stocks during May.

You can see how the rise in oil futures was followed by a rise in Exxon Mobil XOM shortly after, and that the stock has moved in lockstep with brent crude futures at the end of the month.

XOM rose 5 percent from May 1-22 before hitting some resistance at $82 and falling.  

Chart courtesy of VantagePoint

The same thing can be seen in ConocoPhillips COP, as the stock declined in step with both futures markets. COP ran up against technical resistance at $71 at the same time the oil market topped out, at least for now.

Chart courtesy of VantagePoint

Phillips 66 PSX also showed a similar pattern. Though it hasn’t fallen as much, the neural index’s red position and big red candle hints that the stock could be in for more downside.

The stock hit an all-time high of $122.38 on May 17, and has since found support in the previous all-time high handle of $118.

Chart courtesy of VantagePoint

VantagePoint Software is a content partner of Benzinga. For a free demo click here.