The MLP Bounce-Back on the Slight Recovery in Crude
The MLP roller coaster ride
MLPs (master limited partnerships) experienced a roller coaster ride in June due to the high volatility in crude oil and natural gas prices. More than 50% of MLPs hit YTD (year-to-date) lows in the month, while a few traded close to their 52-week lows during the downtrend.
However, MLPs have recovered significantly from their YTD (year-to-date) lows due to the recent slight recovery in commodity prices. Overall, MLPs ended June at only slight declines compared with the previous month. The Alerian MLP Index (AMZ), a capital-weighted index that tracks the performance of 50 energy infrastructure MLPs, fell 0.65% in June, compared with its 5.1% rise in June 2016.
Specifically, 48 out of the 102 MLPs in our analysis ended June in the red, while four remained unchanged, and 50 ended the month in the green.
Still, MLPs underperformed the energy sector and US markets in general in June. The Energy Select Sector Index (IXE) fell 0.27%, while the S&P 500 Index (GSPC) (SPX-INDEX) rose 0.7%—a difference of 38 basis points and 135 basis points, respectively.
MLPs in 1H17
MLPs, which mostly consist of energy and natural resource companies, fell 7.9% in 2Q17, compared with a 2.2% gain in 1Q17. Overall, AMZ lost 5.9% in 1H17, compared with its 9.8% gain in 1H16. MLPs’ overall weak YTD performances can be attributed to weak performances from MLPs with high crude oil exposure.
Although most MLPs have low commodity price exposure, they can still react negatively to significant declines in energy prices. Average crude oil prices were $50.0 per barrel in 1H17, compared with $39.8 per barrel in 1H16. This reflects an increased correlation between MLPs and movements in crude oil prices.
In this series (below), we’ll analyze the recent performances of MLPs in detail, including subgroups, top gainers, biggest losers, and yields. We’ll also examine MLP valuations and analyst recommendations.