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Two possible bottomsI'm not going to say that we've hit bottom outright in the E&P space, but I see two possibilities now. One is that we've hit the bottom and the space will go sideways until some future point when it really begins to recover (requiring significantly higher oil prices, of course). Early investors with long views are probably getting in now. The second possibility is storage fills up and causes an oil price crash (e.g. below $40) going into summer which causes a second E&P crash to levels lower than now, but then *that* winds up being the bottom since after summer enough production world wide will be in retreat that oil prices will have a real recovery. If the second possibility happens then it could be moderated by an increase in the export of barely-refined oil products due to the WTI/Brent differential widening. So look for that as a precursor to a recovery if we get a second crash. This is my view of the general situation that the E&Ps are in. We've already seen a large chunk of the distribution reductions (we could see more, but I think we are over the hump). We've seen enough credit-line refactoring as well. An improvement in WTI prices back above $60 that sticks would stabilize the E&P space. For myself, I currently hold no E&Ps (my holdings are MWE, OKS, and EPD), and I don't think I am adventurous enough to throw money into the E&P space for possibility #1 (i.e. now), but if possibility #2 happens I might open a spec or two and throw money at it some time in the future. -Matt |
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