What happened

On the one hand, it was a relatively quiet week in the oil market. While crude oil notched its third straight week of gains, it only rose about 1% to just over $50 a barrel. On the other hand, oil investors seemed to eye next week's OPEC meeting with optimism, driving them to bid up several financially challenged oil stocks this week, according to data from S&P Global Market Intelligence.

So what

Beaten-down Canadian oil producer Pengrowth Energy (NYSE:PGH) led the way with a ferocious gain of more than 52% on the week. While Pengrowth Energy had no news-driven catalysts to ignite the rally, it has completed a slew of asset sales this year; those have helped lift some of the debt that has been a crushing weight on its financial situation. Overall, net debt is down 66% from the start of the year; the company has been in active negotiations with creditors to relax some of its financial covenants for the next two years, which would provide it with more breathing room. While Pengrowth Energy still has plenty of work to do before it's back on solid ground, traders are apparently growing more optimistic that it's on the path toward stability.

An oil pump with an orange sky in the background

Image source: Getty Images.

Meanwhile, a trio of financially challenged oil producers -- California Resources (NYSE:CRC), W&T Offshore (NYSE:WTI), and Bill Barrett (NYSE:BBG) -- also made double-digit moves higher this week. Again, there weren't any news-driven catalysts to fuel these moves. Instead, what appears to be propelling these oil stocks is a combination of short-covering and optimistic buying on the hopes that this trio has done enough over the past few years to stay afloat, especially if OPEC provides more support for the market.

In California Resources' case, it has cut debt nearly 25% since the middle of 2015. However, the California oil company's leverage ratio remains an unsightly 7.3, well above the under-2.0 ratio of most rivals. W&T Offshore has also cut debt during the downturn, including more than $400 million in an exchange transaction with creditors last year. While the deal bought the company time, it didn't permanently address W&T's financial issues, especially since the offshore producer has nearly $875 million of high-cost debt coming due by 2021. Bill Barrett, likewise, has taken steps to improve its balance sheet, including pushing its next maturity out to 2022. But the company isn't generating enough cash flow to finance planned capital spending, which could come back to bite it if crude reverses course.

Finally, there was one other notable move this week. Oil giant Anadarko Petroleum (NYSE:APC) jumped nearly 12% after unveiling a $2.5 billion stock buyback program. The company believes the buyback is a "very attractive use" of cash because it can repurchase as much as 10% of its stock, which would fuel accelerated production growth on a per-share basis. Analysts loved the move because it shows that Anadarko's focus is on creating value for investors instead of growing for the sake of growth.

Now what

Bottom-tier oil companies surged this week in what appeared to be a combination of momentum-driven trading and short-covering. Those gains, however, could vanish next week if the OPEC-inspired optimism fades, since these companies lack the financial wherewithal to thrive in current market conditions.

That said, one company that can flourish at lower prices is Anadarko Petroleum. The company built up a monster $6 billion cash position during the downturn, and is now using some of that to buy back its cheap stock. Anadarko doesn't need the money since it has a top-tier balance sheet, and can fuel double-digit oil production growth through 2021 with cash flow generated at current oil prices. That upside potential, even if crude doesn't move any higher, makes it a lower-risk way for investors to potentially earn high returns in the oil market.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.