Stock returns for oil companies and their sensitivity to oil price fluctuations

This master thesis is written to analyze the relationship between the stock returns for oil companies and their sensitivity to oil price fluctuation. The topic was chosen to better understand why the stock performance of oil companies differ, when all selected companies are being influenced by Brent crude oil prices. The results are intended to be of use for investors and stakeholders in oil companies. Twenty-five publicly traded oil companies were selected and divided into three subsectors: integrated-, upstream-, and downstream companies. Brent crude was selected as our oil price benchmark and FTSE All World was selected as our market benchmark. Monthly data were retrieved for all companies, Brent crude and FTSE All World in the time period from Jan 2001 to Dec 2020. The results from the analysis indicate that upstream companies have a higher oil beta value on average compared to integrated- and downstream oil companies. Previous oil prices have no effect on present stock returns. Negative oil price changes have a significantly greater effect on stock returns compared to positive changes. Extreme negative oil price changes give a significant addition or deduction to the oil beta. There exist significant values in the quantiles and a Wald-test showed significant differences between quantiles. From the results we conclude that the relationship between the stock return of oil companies to Brent crude is time varying and differentiate under different market conditions