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MLPs Rose Due to Strong Crude Oil and Higher Drilling Activity

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AMZ rose 3.1% last week

MLPs continued to rise for the second-consecutive week in the week ending May 18. The Alerian MLP Index (^AMZ), which includes 50 energy MLPs, rose 3.1% during the week and ended at 267.6. Out of the total 90 MLPs, 62 ended in the green, five remained unchanged, and 23 ended in the red. Among the top MLPs, Williams Partners (WPZ), Plains All American Pipelines (PAA), Energy Transfer Partners (ETP), and Enterprise Products Partners (EPD) rose 10.0%, 4.7%, 2.8%, and 2.8%, respectively.

The Alerian MLP ETF (AMLP), which is comprised of 25 energy MLPs, rose 3.3%. At the same time, the Energy Select Sector SPDR ETF (XLE) rose 1.8%, while the SPDR S&P 500 ETF (SPY) fell 0.6%.

Last week, the MLP gains were driven by gains in crude oil prices and increased US drilling activity. US crude oil rose 0.8% and ended at $71.3 per barrel. To learn more, read S&P 500 Fell, Brent Crude Hit $80 per Barrel.

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Will MLPs continue to outperform this week?

MLPs might continue to outperform the broader US markets and the energy sector this week due to strong crude oil and more US drilling activity. The rise in production activity drives midstream MLPs’ throughput volumes. According to Baker Hughes, the total US rig count increased by one to 1,046 by the end of last week—compared to the previous week. The current rig count is 54 higher than the levels during the end of the first quarter.

On the other hand, high US Treasury yields could weigh on MLPs’ underperformance this week. A rise in US bond yields makes MLPs, which are generally high yielding, look relatively unattractive due to their higher risk. A high bond yield results in a higher cost of capital for MLPs.

Next, we’ll discuss the top MLP gainers last week.

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