Master limited partnership-related exchange traded products surged Thursday after data revealed a slightly lower-than-expected rise in crude oil inventories and optimism over increased dividends and buybacks from Kinder Morgan (NYSE: KMI).
On Thursday, the JPMorgan Alerian MLP Index ETN (NYSEArca: AMJ) and Alerian MLP ETF (NYSEArca: AMLP), the two largest MLP-related ETPs in the space, rose 5.3% and 6.4%, respectively, as West Texas Intermediate crude oil futures jumped 6.2% to $30.1 per barrel. The United States Oil Fund (NYSEArca: USO), which tracks WTI crude oil futures, was 4.1% higher Thursday.
Oil prices rebounded Thursday after the U.S. Energy Information Administration revealed inventories grew by four million barrels last week, or less than the 4.6 million barrel increase the industry group American Petroleum Institute had previously anticipated, the Wall Street Journal reports.
“The market was expecting something worse, so we could see a modest” lift, Bart Melek, head of commodity strategy at TD Securities, told the WSJ.
MLPs are not directly affected by oil prices since the sector acts more like an energy toll road and profits off crude oil flowing threw its pipelines. However, the recent selling pressure in the energy market spilled over to MLPs as traders feared the low prices would force producers to cutback on production, which would mean less volume going through MLPs.
Additionally, MLPs were strengthening as Kinder Morgan stock jumped as much as 20%. KMI was up 14.3% to $13.7 per share late-Thursday.
While the pipeline operator posted a surprising loss in earnings for the fourth quarter, KMI shares rallied after the fund stated it will fund 100% of its growth from internally generated cash, reports Rachel Graf for TheStreet. The company won’t be tapping into debt markets this year and could generate $300 million in free cash flow, which could leave the operator to increasing dividend or buy back shares.
The Global X MLP & Energy Infrastructure ETF (NYSEArca: MLPX), which includes a 7.0% tilt toward KMI, also gained 5.4% on the outlook.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.