MLPs Are Approaching a Triple, But Are Headwinds on the Horizon?

Joseph Cioffi |

MLPs, master limited partnerships, oil prices, gas pricesIt may be hard to imagine a steady, boring group like MLPs approaching a triple on its index, but indeed it is. Back in October 2008 when the world was ending, the MLP index bottomed at 145. We closed Friday at 411 and change, and we are only 24 points away from the index having tripled in price in a little under four years.

During this same period the Dow Jones Industrials are up about 60%, but the overall market did not hit its lows until five months later and it has a double from there. MLPs have been pretty much the leader in the rally that began for this group in October 2008 and for the overall market in March 2009. Since MLPs have not topped out yet, I think it's fair to argue that since they were the first to lead, they will be the first to break down before the overall market breaks down. And as of right now there is still no sign of a top.

One of the signs of a top back in 2008 was the spike in oil prices, which ran up in July of 2008. Brent is the new leader here as it is the correct world oil price and it is on the verge of breaking out  to new highs here at 125.
Today’s price matches up well with $4 gasoline and if we are on our way to $5 at the pump and $150 on Brent oil, you have to wonder whether that might be the first in a series of headwinds to take markets lower. So far it hasn’t mattered but at some point it will. MLPs may not care much where the oil price is but if price eventually dries up demand, it will impact volume being moved around in pipelines and that will cause some MLP holders to pay attention. But for now all remains okay in the world.

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Companies

Symbol Name Price Change % Volume
BIOD Biodel Inc. n/a n/a n/a n/a
MLP Maui Land & Pineapple Company Inc. 6.93 0.08 1.10 1,965
MEMP Memorial Production Partners LP 0.64 0.16 33.08 3,477,480
BPL Buckeye Partners L.P. 62.50 -0.22 -0.35 653,730

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