Since my previous, positive, mention of Western Refining Inc (NYSE:WNR) in a piece entitled Updating My Outlook For Western Refining, published December 20, 2012, shares are up just more than 4%. However, at one point, WNR shares had surged more than 30% following my previous mention.
The spread between Brent oil and WTI oil has narrowed considerably. As shown by the chart below, the spread has narrowed 55% since December 20. In a previous piece, I discussed the reasons why the widening of the Brent/WTI spread was bullish for WNR and other refiners such as Tesoro (NYSE:TSO) and Valero (NYSE:VLO). The recent narrowing of the spread is unquestionably negative for refiners.
In addition to the Brent/WTI spread, another reason why I was bullish on WNR was momentum. At the time of my previous articles, WNR was just breaking out of a multi-month trading range. Now, WNR is in a well defined downtrend which looks like it will continue. Simply put, momentum is no longer a friend of WNR longs.
Recently, during the month of March in particular, insiders have been actively selling WNR. In fact, over the past 6 months insiders have sold more than 2.5 million shares while insider purchases total just 1,000 shares. This is certainly a negative as insiders tend to know more about the future prospects for a company than the average investor.
Short interest continues to remain high in WNR. As of April 15, when short interest was last recorded, more than 16 million shares or 29% of the float was sold short. In the past, I have argued that the high short interest is a positive as it makes a short squeeze possible. Of course, that still remains the case but in order for a short squeeze to occur a positive catalyst is needed. The narrowing of the Brent/WTI spread makes it less likely that a short squeeze will occur anytime soon.
In my opinion, the bullish trade in WNR is over for now. The narrowing of the Brent/WTI spread, insider selling, and loss of momentum are all reasons why I am no longer bullish on WNR. That being said, I would not sell the stock short because it is already so heavily shorted. I would consider positively revising my outlook for WNR if the Brent/WTI spread widens from here.