Oil Stocks Versus Oil

Below we highlight the historical ratio of the S&P 500 Oil and Gas group versus the price of oil over the last ten years. When the red line is rising, oil stocks are outperforming the commodity and vice versa when the line is declining.

For the last year, the red line has been trending downward, meaning the commodity has been outperforming oil stocks. The ratio got down to 5 in mid-March, which was the lowest level seen since March 2003.

At these levels, the ratio typically bounces and heads higher for awhile, meaning oil stocks would begin to outperform the price of oil. This could mean oil prices rise less than oil stocks or fall at a faster pace.

click to enlarge

Comments

[AmesTiedeman]

Your analysis is right on. This is yet another reason that many Canadian Oil Trusts will be looking good soon.

[Jack Yetiv]

I think the Canroys are lookin' pretty fine right now. I esepcially like PWE, but AAV is also a good play.

Where else can you get 13-14% return pretty much guaranteed with relatively low risk of downside and a decent chance for upside?

Jack

[NormanLepoff, M.D.]

Great article. Thanks for the info.