This Week in Energy: BP, Seadrill, Energy Transfer, and Others

It’s been an action packed week for the energy sector. U.S. crude inventories fell less than expected, while Britain voted to leave the E.U. The U.S. rig count also unexpectedly declined.

In this article, we take a closer look at the events that have affected BP plc (ADR) (NYSE:BP), Whiting Petroleum Corp (NYSE:WLL), Seadrill Ltd (NYSE:SDRL), Energy Transfer Equity LP (NYSE:ETE), and Williams Companies Inc (NYSE:WMB) this week and see how the funds tracked by us are positioned towards them.

At Insider Monkey, we track around 770 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on, can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see the details here).

Volatility Returns due to Brexit, Inventory

BP plc (ADR) (NYSE:BP),Whiting Petroleum Corp (NYSE:WLL), and Seadrill Ltd (NYSE:SDRL) were stocks each affected by this week’s three major catalysts, which caused crude’s volatility to rise sequentially. After surging on the back of Tuesday’s optimistic API inventory numbers, crude prices retreated on Wednesday’s headline EIA inventory drawdown number of 0.9 million barrels. Analysts were expecting a drawdown of 1.7 million barrels and the market was expecting even more given the API number. Although there was a silver lining in the report in that domestic crude production fell by 39,000 barrels per day last week and imports were a big reason the headline drawdown number didn’t meet estimates, the bulls received more bad news on Friday courtesy of the British electorate, which voted to leave the EU a day earlier. Given the massive unknowns associated with a ‘Brexit’ scenario, many traders took a ‘risk-off’ approach and sold higher-beta stocks, which caused equities like Seadrill and Whiting Petroleum to fall. Traders also sold off crude futures, which caused shares of giants such as BP to retrace as well. Although it could take two years for Britain to fully exit the EU, traders are afraid that central banks around the world won’t have much flexibility to counter any potential recession seeing as interest rates are already very low. If Europe or Britain enter a recession, the overall demand growth for crude might slow. With that being said, WTI futures at $47.56 per barrel feels like a victory given this week’s events. Not to be forgotten, WTI futures traded around $46 last week mainly due to ‘Brexit’ fears.

Of the 766 elite funds we track, 34 funds owned $685.46 million worth of BP plc (ADR) (NYSE:BP)’s stock, which accounted for 0.70% of the float on March 31, versus 32 funds and $749.3 million, respectively, a quarter earlier.Whiting Petroleum Corp (NYSE:WLL) counted 43 funds among its shareholders while Seadrill Ltd (NYSE:SDRL) had 22 investors holding shares at the end of March.

On the next page, we examine Energy Transfer Equity LP, and Williams Companies Inc.
Judge Rules in Favor of Energy Transfer

Energy Transfer Equity LP (NYSE:ETE) just scored a major victory in its quest to terminate its proposed merger with Williams Companies Inc (NYSE:WMB), which has been a disaster of epic proportions ever since energy prices started tanking.  A judge ruled on Friday that that Energy Transfer’s concern over unexpected taxes for the merger was a legitimate issue and that the lawyers who brought the issue up were acting in ‘good faith’. The ruling will allow Energy Transfer to exit the deal without having to pay a break up fee and saves Energy Transfer a lot of liquidity that the company can use for other more productive purposes. Needless to say, Williams Companies will likely appeal the verdict. Given its solid performance this week (up over 6% and another 6% in after hours), Energy Transfer bulls certainly hope the judge’s ruling will hold up. A total of 31 funds from our database amassed $306.03 million worth of Energy Transfer Equity LP (NYSE:ETE)’s stock and 52 funds owned $2.27 billion worth of Williams Companies Inc (NYSE:WMB)’s shares at the end of March.

Disclosure: none