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There's blood on the streets
Old 09-23-2015, 12:07 PM   #1
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There's blood on the streets

A nice article demonstrating the panic going on in oil.

Even the Dead Aren't Spared as Oil Price Rout Clobbers MLPs - Bloomberg Business

This article is particularly relevant for me as I am putting my biggest bet on US midstream MLPs (AMLP etf), in terms of the oil "crisis".
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Old 09-23-2015, 02:18 PM   #2
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There is no blood in the streets.

The linked article is just trying to get folks to buy some non-oil MLPs by saying they went down. Guess what? Everything went down in August by about the amounts listed in the article.

In case the Bloomberg author and the analysts quoted in the article have not noticed, total market stock index funds were down from the end of June between 12% to 15% to the last week of August. Thus cemetery MLPs are no exception and are not tainted by oil MLPs … unless all stocks are tainted by oil MLPs.
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Old 09-23-2015, 02:40 PM   #3
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The article states that the midstream MLP sector (represented by AMLP) has declined 37%. Looks like blood on the streets to me.

Pipelines are by far the cheapest way to transport oil, natural gas, etc. Oil demand is currently increasing in the US, not decreasing. Pipelines make money on transportation, not the oil price. Yet, they have tanked along with anything associated with oil.
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Old 09-23-2015, 02:53 PM   #4
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Originally Posted by ESRwannabe View Post
The article states that the midstream MLP sector (represented by AMLP) has declined 37%. Looks like blood on the streets to me.

Pipelines are by far the cheapest way to transport oil, natural gas, etc. Oil demand is currently increasing in the US, not decreasing. Pipelines make money on transportation, not the oil price. Yet, they have tanked along with anything associated with oil.
Same deal with the stocks of oil tanker companies. They directly benefit from lower prices as transport volumes spike and from time to time floating storage demand pops up, further pushing up rates. Yet these stocks got clobbered with everything else and still get no love despite the fact that 2015 is shaping up to be the best year for these guys since 2008.
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Old 09-23-2015, 02:56 PM   #5
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I live in the oil patch. Anybody connected to oil has to charge less money for services or they will not get the business. Are pipelines and tankers charging less for their services?
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Old 09-23-2015, 03:06 PM   #6
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I live in the oil patch. Anybody connected to oil has to charge less money for services or they will not get the business. Are pipelines and tankers charging less for their services?
Low oil price is increasing demand (what's cure for low oil prices? answer is low oil prices)...

So they may have to lower prices but the volume is going up. They get paid on the volume. So how it all plays out I'm not sure, but I doubt that a 37% decline is what's going on in terms of profits.

The other thing is that most midstream deals are long term contracts that can't just change on a whim. I bet for many midstream companies their contracts will not even be up for renewal until this whole thing settles down. I would bet that many of them are seeing no downturn in profits the past two years as they are on long term contracts.

Anyway, it will all get settled out. What I can say is oil demand is increasing and midstream pipelines make money on volume transporting oil/ng here, domestically, in the US.
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Old 09-23-2015, 03:23 PM   #7
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The article states that the midstream MLP sector (represented by AMLP) has declined 37%. Looks like blood on the streets to me.

A 37% decline is not blood on the streets. I remember a lot of Tech stocks down 90% in the Tech crash.
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Old 09-23-2015, 03:30 PM   #8
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The other thing is that most midstream deals are long term contracts that can't just change on a whim. I bet for many midstream companies their contracts will not even be up for renewal until this whole thing settles down. I would bet that many of them are seeing no downturn in profits the past two years as they are on long term contracts.
Your faith might be misplaced. Companies can go bankrupt and cannot pay those long-term contracts. Contracts are renegotiable, too.

Back to blood: You can't squeeze blood out of a turnip.
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Old 09-23-2015, 03:35 PM   #9
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Same deal with the stocks of oil tanker companies. They directly benefit from lower prices as transport volumes spike and from time to time floating storage demand pops up, further pushing up rates. Yet these stocks got clobbered with everything else and still get no love despite the fact that 2015 is shaping up to be the best year for these guys since 2008.
Great point.

I guess its up for debate on whether its a panic or not, but from my view there are some illogical things going on.
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Old 09-23-2015, 03:38 PM   #10
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Your faith might be misplaced. Companies can go bankrupt and cannot pay those long-term contracts. Contracts are renegotiable, too.

Back to blood: You can't squeeze blood out of a turnip.

If the demand is increasing for oil pipeline transportation then eventually things will work out for the company that focuses on that. It may mean that US shale goes out of business. In which case the oil comes from Opec or somewhere else. Regardless, the oil still needs to be transported to where it is needed in the US.
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Old 09-23-2015, 03:41 PM   #11
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A 37% decline is not blood on the streets. I remember a lot of Tech stocks down 90% in the Tech crash.

Tough crowd here...

Ok, a 37% decline is a minor correction.
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Old 09-23-2015, 06:12 PM   #12
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No, I think 37% decline is plenty bad. But as the overall market is nowhere hurt that bad, you cannot say "blood on the streets".

Rather, it's "blood in the oil field".
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Why Only AMLP?
Old 09-23-2015, 07:43 PM   #13
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Why Only AMLP?

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Originally Posted by ESRwannabe View Post
....I am putting my biggest bet on US midstream MLPs (AMLP etf), in terms of the oil "crisis".
AMLP seems to be far and away the favorite ETF around here for MPL exposure.

Is this just because of size, liquidity, bid/ask spreads etc.? Or, is there something fundamentally flawed with some of the other MPL focused ETF's with lower expense ratios that I am missing.

A partial list of other ETF's in this sector:
  • MLPX
  • ENFR
  • MLPA
  • MLPJ
  • AMZA

I do not know enough about this sector to evaluate the underlying holdings for myself. So, I am trying to educate myself.

Thank you.
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Old 09-23-2015, 08:49 PM   #14
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I live in the oil patch. Anybody connected to oil has to charge less money for services or they will not get the business. Are pipelines and tankers charging less for their services?
Tankers are charging more. Supply and demand. You want to ship oil from the ME Gulf to China? It will run you about $70k/day just to rent the ship, and that includes the time the ship spends going back to the Gulf empty. This is way, way up from rates a couple years ago (maybe 25k/day). Why? Low prices means volumes go way up. There are only so many ships available and it takes time to build more. Now if you don't like the price, you don't have to hire the ship. But stand aside so you do not get trampled...
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Old 09-23-2015, 09:17 PM   #15
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OK, what are the Chinese doing with all the oil they are buying cheaply? Their economy appears to be slowing down, so are they just storing the oil and building up their strategic petroleum reserves while oil prices are cheap?
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Old 09-23-2015, 10:00 PM   #16
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OK, what are the Chinese doing with all the oil they are buying cheaply? Their economy appears to be slowing down, so are they just storing the oil and building up their strategic petroleum reserves while oil prices are cheap?
Precisely.
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Old 09-23-2015, 10:25 PM   #17
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OK, what are the Chinese doing with all the oil they are buying cheaply? Their economy appears to be slowing down, so are they just storing the oil and building up their strategic petroleum reserves while oil prices are cheap?
Yes, the Chinese are stockpiling crude in a big way. There was an article a few weeks ago (I read it but can't remember where) that indicated their storage terminal tankage is going to increase dramatically.
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Old 09-23-2015, 11:02 PM   #18
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Blood in my love in the terrible summer
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Old 09-23-2015, 11:14 PM   #19
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AMLP seems to be far and away the favorite ETF around here for MPL exposure.

Is this just because of size, liquidity, bid/ask spreads etc.? Or, is there something fundamentally flawed with some of the other MPL focused ETF's with lower expense ratios that I am missing.

A partial list of other ETF's in this sector:
  • MLPX
  • ENFR
  • MLPA
  • MLPJ
  • AMZA

I do not know enough about this sector to evaluate the underlying holdings for myself. So, I am trying to educate myself.

Thank you.

Well, its just a market cap weighted index and its a c-corp to deal with the tax issues (which all MLP ETFs will have to deal with). So there isn't anything making it unique in that aspect.

What AMLP has going for it is that it was the first MLP ETF (there have been closed end funds and ETNs before this). As a result of being first its also the largest MLP ETF.
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Old 09-24-2015, 12:19 AM   #20
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Just throwing this in there.

Earlier this year the EPA put out the "clean power plan" which requires utility companies to reduce their CO^2 emissions. By far the easiest way to do this is going to be to replace coal power plants with natural gas plants.

Clean Power Plan for Existing Power Plants | Clean Power Plan | US EPA

This was already happening anyway as natural gas plants are cheaper to run and more profitable than coal plants.

Anyway, 29% of AMLP is natural gas pipelines (NG makes up about 1/3 of midstream MLP sector).

The US natural gas association of america estimated in a 2014 study that the US will need $641 billion investment, over the next two decades, to meet the demand. That's larger than the current MLP sector market cap...
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