Oil Company Returns and Oil Prices - Do not always move together

Oil price behavior embedded in futures markets will not translate to oil company stock behavior. This should not be surprising. The relationship over the short-run may be very different than longer-term relationships. This should also not be surprising. Yet, long and short-term relationships are often confused or misunderstood.

The oil price - equity relationship tells very different stories between the long and short-run. For the year 2021, oil and exploration companies have moved together. Integrated oil has not moved with price. Reserve valuation will closely move with price that has a strong trend and the expectation of staying at high levels. Integrated companies will subject product demand and refining margins. 

Over the longer-run (5-years), the gains in energy stocks have been muted relative to the oil price shocks. Oil ETFs are still below prices five years ago even though oil prices are up 60 percent over the same period. The longer-term trend is to price lower valuation for traditional oil regardless of price. Investing in traditional energy companies is not the same as investing or taking advantage of the oil price move.