For MLPs, today’s low energy prices make it very much a “best of times, worst of times” story, according to experts with Cushing Asset Management in Dallas.
“So much has happened since the end of June and in July — it’s been one of the worst, most volatile months I’ve seen in some time,” said Jerry Swank, managing partner, founder and portfolio manager of Cushing, on its second-quarter call with investors Tuesday.
Crude oil fell 44% in the 12 months ending June 30, while natural gas prices dropped 37%.
This means that the valuations of many master limited partnerships have crashed as well, giving investors a chance to move into the sector.
“This is the most negative sentiment I’ve felt for a long time,” said Swank, who has followed the energy business for 41 years.
“Everyone has thrown in the towel. Everyone is so negative, we’ve got to be close to the bottom” of the energy price decline, he added.
In January, Swank said the group thought there was an 80% chance the price hadn’t hit the bottom. In April, it said there was an 80% chance that it had. “Today we are nervous, but we would say we have seen the bottom,” the expert state
This means buyers can step up. “The fundamentals are not nearly what the market has been telling us in the last few weeks,” Swank explained.
Overall, midstream MLP yields are at 6.4% as of June 30 vs. 2.4% for 10-year Treasuries and 4% for utilities and real estate investment trusts.