Energy Pipelines Remain Unfazed By Low Oil Prices

By Tom Lydon, ETF Trends

Even as oil prices decline, master limited partnerships (MLPs) and related exchange traded funds will continue to benefit from the rising production from U.S. oil drillers.

Unlike other energy sector stocks, MLPs primarily deal with the distribution and storage of energy products, so their business model is less reliant on the commodities market since MLPs profit off the quantity of oil and natural gas they are able to move around. In the U.S., we are experiencing an oil boom from new drilling techniques implemented in shale oil beds.

The big change has been that U.S. production of crude oil has been really ramping up over the past four years, because everybody has gotten more prolific about getting oil out of the ground,” Stewart Glickman, group head of energy research at S&P Capital IQ, said in an InvestmentNews article.

Glickman also argued that the logical play in the energy market now is through infrastructure and MLPs that contract to transport the commodity, no mater the per-barrel price.

“It doesn’t matter to the pipeline what the price of oil is, because they are getting fees for volume and clearly the volumes are high,” Glickman added.

Despite the falling oil prices, hydraulic fracturing shale drillers plan to expand production, which could mean that MLPs will experience more business ahead as the companies move around all the excess oil.

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Energy MLPs are a component of the D2 Capital Management Multi-Asset Income Portfolio. Current yield on the portfolio is 4.92% and year to date the portfolio is up 8.57% (as of 19 November 2014).

Disclosure:  I own the D2 Capital Management Multi-Asset Income Portfolio

The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

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