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Energy Stocks

MLPs: Be Selective

By Roger S. Conrad, on Dec. 15, 2015

The Alerian MLP Index has given up 42.5 percent of its value since the beginning of the year, with yesterday bringing yet another sharp selloff.

In terms of fundamentals, much of this weakness stemmed from further downside in oil and gas prices.

As we’ve warned for months, already elevated US crude-oil inventories heading into a period of seasonally weak demand create a scenario where WTI prices could slip to $30 per barrel or less.

The US natural-gas market likewise suffers from a severe supply overhang. If the El Nino current in the Pacific Ocean results in a warm winter in the Midwest and Northeast, natural-gas prices could tumble even further. And incremental takeaway capacity from the Marcellus Shale will pressure prices in the Midwest and the Henry Hub, the official delivery point for natural gas traded on the New York Mercantile Exchange.

Despite today’s recovery rally, MLPs face several headline risks that will continue to haunt the space in the near term.

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