Headline Edge: Is The Surge In Oil Price Revving Up or Running On Empty?

In the biggest reversal of fortune for the commodity since it rebounded from its 2016 crash, oil has surged about 50 percent from the 52-week lows it set back late in December. Now, thanks in part to production cuts from members of OPEC, Brent Crude is priced above a solid $70 level, and OPEC claims it doesn't plan on ramping up production until it reaches the $80 level it last hit back in October of 2018.

As a result, equities correlated to energy prices have seen decent growth through the first few months of 2019, with the likes of Exxon Mobil Corporation XOM up 17 percent and Schlumberger Limited SLB up an impressive 20 percent on the year.

But with continued uncertainty surrounding both global supply and demand in the coming months and years, analysts are divided about whether we will see $80 oil again anytime soon.

Because of the energy market’s volatile nature, news and opinion can impact the sector in profound and unexpected ways. With the help of the Yewno|Edge news and research platform, we can anticipate exactly how headline sentiment is weighing on the energy market and the companies operating within it. Using AI computational linguistics to extract meaning and interpret sentiment on headlines, articles and other relevant publications, the Yewno|Edge stock research platform allows traders to see which companies hold the highest degree of exposure to these latest energy sector developments.

First, by accessing the key developments tool, we can search for the latest media releases pertaining to everything from OPEC to Iranian oil sanctions. In the interest of keying in on asset valuation of equities exposed oil prices, we’ll use “price of oil” as the search term. We’ll also limit our results to U.S.-based companies.

You can see that much of the recent news surrounding the price of oil has come from analysts forecasting where the current price is being felt the most and whether the commodity will keep up this trajectory. Two of the most recent headlines indicate that, at least within RBC and JPMorgan Chase & Co. JPM, expectations are that oil remains at or above its current price.

Further down are several headlines with a direct impact on the sector. We can see a story from April 10, which reports on Chevron Corporation CVX approaching new 52-week highs prior to its buyout of Anadarko Petroleum Corporation APC the following day. You can see the article reflects highly on Chevron thanks to the sentiment gauge to the far right, which shows a +0.3 reading based on the content of the headline.

However, what keen investors might have cued-in on before that is the headlines from April 9th that highlighted three energy companies that represent trading opportunities in the energy space. Among those three is the recently acquired Anadarko, alongside Concho Resources Inc. CXO ConocoPhillips COP.

Although still up roughly 5 percent this year, ConocoPhillips hasn’t yet seen the same interest others in the energy sector have experienced alongside surging oil prices. We can take a better look at ConocoPhillips by bringing up its Company Insights page, which shows company details and stock price in addition to recent key developments, additional concepts and themes to which the stock has exposure.

While this provides us with further insight on ConocoPhillips, we can gain an even broader view of the potential growth still latent in the energy sector by generating a strategy within Yewno|Edge that has exposure to similar concepts to those of ConocoPhillips, Chevron and Anadarko Petroleum. We’ll use Yewno|Edge’s Strategy Builder component to construct a strategy around our “price of oil” concept from earlier, but we’ll also add “Hydrocarbon exploration” since it received a jump in sentiment recently, while also filtering for those companies with a mid-range exposure to OPEC decisions.

This list was generated by filtering out unrelated industries like healthcare as well as those companies with outsized exposure to the “OPEC” concept while ranking the remainder based on their exposure to the “price of oil” concept. You can see that many oil-adjacent companies and industries are included in this small excerpt of the strategy, including Schlumberger, Caterpillar Inc. CAT and Cummins Inc. CMI.

While no strategy is guaranteed to work in the future, backtested results show that this strategy has outperformed the Nasdaq Index in 2019 by nearly 10 percentage points.

Obviously this strategy can be tailored further to reflect an individual investors thesis on the oil market. However, these correlated stocks offer a strong starting point for those looking for alternative strategies to play the elevated price in oil while it lasts.

Yewno is a content partner of Benzinga