We have started to see a bottoming process in the energy space begin to take hold. Limitations in crude oil production by OPEC and non-OPEC energy producers appear to have stabilized the supply to markets. In addition, demand is performing a bit better than forecast. As a result the US WTI (West Texas Intermediate) benchmark has recently stabilized in the neighborhood of $50 per barrel. This is despite the negative effects of recent hurricanes on refinery operations. A more stable environment for crude oil prices would be helpful for the energy complex, including master limited partnerships (MLPs). Partnerships have been creative in forming joint ventures and otherwise stabilizing their balance sheets. Valuations still appear attractive. The yield, at 7.65% (9/15/17)1, is appealing when compared to the 10-yr. US Treasury bond at 2.19% (9/15/17). The yield spread between the two, 547 basis points (5.47%), is still wider than the 15-year average spread of 3.57%. We expect distributions for most partnerships to continue to increase at single-digit rates. These factors have led us to become positive rather than neutral on MLPs.
Richard Daskin
Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.
Sign up for our FREE Cumberland Market Commentaries
Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.
