Could Crude Oil Outperform the S&P 500 If Demand Picks Up?
A Crude Awakening: How Can Oil Outperform the S&P 500?
Crude oil outperforms the S&P 500
Between November 11, 2006, and March 11, 2016, US (SPY) crude oil (USO) futures witnessed three significant upside rallies and two important downside rallies. The significant upside rallies occurred between 2006 and 2008, 2009 and 2011, and 2011 and 2012. The downside rallies are related to the fall during the financial crisis between 2008 and 2009 and the oversupply situation that started mid-2014.
In the last three significant upside rallies, crude oil futures clearly outperformed broader markets (SPY). As crude futures are riskier than the S&P 500, during these upside moves, crude oil futures can outperform the index.
Key energy ETFs to watch during crude oil rallies
On a historical basis, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) is more correlated with crude oil than the Energy Select Sector SPDR ETF (XLE) or the iShares Global Energy ETF (IXC). To learn more about this, please refer to What Are the Key ETFs When Crude Oil Rallies? To learn more about the crude oil correlations and dividend returns of upstream companies such as Pioneer Natural Resources (PXD), Murphy Oil (MUR), and EOG Resources (EOG), you can read Why Own Energy Stocks When You Could be Own Crude Oil Futures? Abraxas Petroleum (AXAS), WPX Energy (WPX), and Devon Energy (DVN) are also highly correlated with crude oil.
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