XOM vs XOI
Posted by zmann on October 2, 2006
As I mentioned earlier, XOM has performed remarkably well in the face of steady declines in crude oil and natural gas prices. Although energy related funds are not prone to run to cash during times of falling commodity and stock prices, they do shift their allocations to what are perceived to be safer bets. Safer generally equates to bigger, highly profitable, lower volatilty stocks.
The link below shows the correlation between XOM and the XOI – amex oil index – of which XOM is a part along with 11 other large cap energy companies. In mid August, XOM began to outperform the index which roughly corresponds to peak oil this year. Energy focused funds began to narrow their energy weightings taking money out of riskier stocks in the energy complex including several in the XOI and transferring a good bit of those dollars into XOM. Since mid Aug. 15th, XOI and XOM are down 9% and 2% respectively, while Nov oil and gas have fallen 18% and 35% respectively. These divergences do not last. However, while I’m still in my Xom puts and have faith that it will fall, some day, it’s impossible to determine when XOM will capitulate (if ever). My sense is that a better way to play an expected drop in oil is to go after the large cap independents like an APA or DVN or , for those of you with a quick trigger finger, SU.