Oil is headed for its best monthly gain in more than a year. How to trade it

Published Mon, Jul 31 202312:09 PM EDTUpdated Mon, Jul 31 20231:14 PM EDT

Oil prices have been on a tear this month, and it could mean good news for certain stocks. Crude rallied in July after top exporters Saudi Arabia and Russia announced supply cuts for August. West Texas Intermediate has surged more than 14% for the month, putting it on pace for its best monthly performance since its 17.2% gain in January 2022. This month also marks WTI's second consecutive positive month — its longest winning streak since a six-month run that ended May 2022. With these gains in mind, CNBC Pro looked for stocks that could benefit from further gains in oil. The stocks on the list fell under the following criteria: Russell 1000 member 50-day correlation with WTI of 0.55 or more Average correlation with WTI since 2015 of 0.55 or more A positive correlation value indicates movement in the same direction for the stock and oil prices. The higher the correlation value is to 1, the stronger the relationship between the stock and oil prices. Take a look at the companies that made the cut, and where analysts see them headed next. APA APA has the strongest 50-day correlation with WTI prices of 0.71, meaning it is likely to see gains as the commodity continues to rise. The natural gas producer has surged 18.5% in July. The stock is still down 13.3% year to date. Earlier in the month, Goldman Sachs downgraded shares to sell from neutral. The company is scheduled to release its quarterly earnings Wednesday. Devon Energy Shares of Devon Energy have popped more than 11% month to date. It has a 50-day correlation of 0.69 with WTI, and an average correlation of 0.59 with the commodity since 2015. More than half of the analysts covering the stock rate it a buy or a strong buy, according to Refinitiv. The average price target suggests shares have additional 12.3% upside from Friday's close. The stock gained 1.4% Monday morning. Devon Energy is set to report its second-quarter earnings Tuesday. Diamondback Energy Diamondback Energy, another name on the list, has gained almost 12% in July. The stock's 50-day and average correlation since 2015 are 0.63 and 0.56, respectively. More than 86% of analysts covering the stock have issued it a buy or strong buy rating, per Refinitiv. Shares are up 7.2% in 2023, putting it on par with the energy sector's year-to-date performance. The company is reporting its quarterly earnings Monday after the bell. Pioneer Natural Resources The Texas-based oil company has a 50-day correlation value of 0.65 with WTI Crude. Shares are up 9.3% for the month, and are down less than 1% in 2023. Earlier in July, DCLA managing partner Sarat Sethi named the stock as "part of a core portfolio." Half of the analysts covering the stock rate it a buy, with an estimated 10.3% additional rally. Pioneer's second-quarter results come out Tuesday. — CNBC's Michael Bloom contributed to this report.