Is oil a good bet for 2018? Hedge funds seem to think so according to a recent report by Bloomberg. They are betting heavily on a continued uptrend in oil prices. Bloomberg reports that hedge funds’ net-long positions – the difference between bets on a price increase and those on a drop – for the West Texas Intermediate (WTI) were up by 2.9% for the week ended January 23 to 496,111 futures and options, the highest since 2006. The Brent net-long position among hedge funds rose by 2.4% to 584,707: long positions were up by 1% while short positions fell by 12%. “The long oil trade continues to be the place to be,” commented Rob Thummel, managing director at Tortoise Capital Advisors LLC.
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Brent oil futures are currently up by 3.4% since the start of 2018, while WTI is up by approximately 8%. Crude prices have been in an uptrend for the past 5 months, helped by OPEC’s remarkable discipline in maintaining their schedule of output cuts, with Russia and Saudi Arabia having made great efforts to wipe out the supply glut. Recent weakness of the US dollar has also helped prices rise further. These developments should have a major impact on the bottom line of oil companies.
After oil prices crashed in 2014, most oil companies have embarked on quests to cut down costs and improve efficiency so that they could operate profitably at lower oil prices. They got rid of low quality or high costs assets in order to focus more on the most productive and top-tier assets. A large number of oil companies have also put in a lot of effort to reduce debt and solidify their balance sheet. As a result, these companies are sitting on great piles of cash ready to be deployed at the right time: either to increase production or improve efficiency of existing wells, or to return money to shareholders via dividends or share buybacks. Most companies have based their turnaround plans on the assumption that oil prices would fluctuate around the $50 level for the foreseeable future. However, with oil price rising, it is highly probable that companies will surpass their forward guidance and would provide some pleasant earnings surprises.
With so many companies to choose from and so many ways to screen them, some investors might find it difficult to make a decision. Insider Monkey likes to look at companies billionaire fund managers are betting on. After all, there is a very simple reason they’ve become billionaires – their ability to pick stocks.
First up is Encana Corp (USA) (NYSE:ECA), a Canadian energy producer with a portfolio comprising multiple basins of natural gas, oil and natural gas liquids (NGLs). According to Insider Monkey’s Billionaire database, this stock could be found in the equity portfolios of 8 billionaire hedge fund managers at the end of the 2017 third quarter, up from 7 a quarter before. The largest position was held by Andreas Halvorsen’s Viking Global, which indicated ownership of 93.4 million Encana Corp (USA) (NYSE:ECA) shares in its latest quarterly report, up 29% from the second quarter. Paul Singer and Elliott Management also have a big bet on Encana Corp (USA) (NYSE:ECA), with the fund holding exactly 37.5 million shares at the end of the third quarter.
Energy giant Exxon Mobil Corporation (NYSE:XOM) is also a darling of elite hedge fund managers, with 8 billionaires invested in the company at the end of 2017 Q3. Jim Simons’ Renaissance Technologies was among the top holders of Exxon Mobil Corporation (NYSE:XOM) stock, having indicated ownership of 3.65 million shares, a position initiated during the quarter. David E Shaw’s D E Shaw was also betting on Exxon Mobil Corporation (NYSE:XOM) as it held 1.76 million shares at the end of September. When it comes to overall hedge fund interest, Exxon was the most popular energy stock, with 58 funds invested.
Next up is Newfield Exploration Co. (NYSE:NFX), an independent exploration and production company operating mainly onshore. At the end of the third quarter, 9 of the billionaire fund managers tracked by Insider Monkey had Newfield Exploration Co. (NYSE:NFX) in their portfolio, up from 7 registered in the previous quarter. Among them, David E Shaw’s D E Shaw held the largest positions, which amounted to 639,812 shares, down 56% from the previous quarter. Steven Cohen held a similar bet on Newfield Exploration Co. (NYSE:NFX) with his family office, Point72 Asset Management, having reported ownership of 600,000 shares in its latest 13F filing.
On par with Newfield Exploration is Devon Energy Corp (NYSE:DVN), an energy company with operations both in the United States and in Canada, and that also controls EnLink Midstream Partners LP (NYSE:ENLK). Our data shows that 9 billionaire fund managers were invested in Devon Energy Corp (NYSE:DVN) at the end of the third quarter, the most notable among them being Ken Griffin and Israel Englander. Griffin’s Citadel Investment Group held 5.81 million shares of Devon Energy according to its latest 13F filing, while Englander’s Millennium Management reported ownership of 4.65 million shares at the end of the third quarter.
Anadarko Petroleum Corporation (NYSE:APC) completes the trio of oil companies that had 9 billionaire fund managers among its shareholders at the end of September 2017. Steven Cohen was very bullish on this stock, having more than doubled his fund’s holding during the third quarter. According to its latest 13F filing, Point72 Asset Management held roughly 2.57 million shares of Anadarko Petroleum Corporation (NYSE:APC). Jim Simons’ Renaissance Technologies, on the other hand, chose to reduce its exposure to the stock, having cut its position by a quarter to a little under 2 million shares.
Sitting prettily at the top is EQT Corporation (NYSE:EQT), a company engaged mainly in exploration and production, as well as transmission and storage of natural gas and natural gas liquids. At the end of the 2017 third quarter, 12 of the billionaires followed by Insider Monkey had a stake in the company, up from 9 registered a quarter earlier. Barry Rosenstein’s JANA Partners upped its bet on EQT Corporation (NYSE:EQT) by 24% during the third quarter, having amassed approximately 10.2 million shares according to its latest 13F filing. Daniel S. Och’s OZ Management has also stepped up its interest in EQT Corporation (NYSE:EQT), having boosted its holding by 86% to some 6.43 million shares.
Disclosure: none.
