Buoyed by rising oil prices, the ALPS Alerian MLP ETF (NYSEArca: AMLP), the largest exchange traded fund holding master limited partnerships (MLPs) is up a solid 3.9% over the past month and nearly 23% over the past 90 days.
The charts indicate AMLP could have some more upside to offer over the near-term. MLPs primarily deal with the distribution and storage of energy products, so their business model is less reliant on the commodities market since MLPs profit off the quantity of oil and natural gas they are able to move around.
Consequently, MLPs have historically shown a weaker correlation to energy prices over longer periods as MLPs act more like energy toll roads, profiting on the volume of oil moving through their pipelines.
Related: Downtrodden MLP ETFs May Offer Long-Term Opportunity
With the markets flooded with oil and prices still depressed, basic economic theory suggests that consumption could rise to capitalize on the cheap crude. With higher consumption, MLP tollkeepers could profit off the increased transportation or storage of energy.
“Looking at the daily setup, we have a rising wedge pattern, and while this can trigger a buy on a breakout above the upside resistance, $12.50 in this case, it tends to fail more often and break lower. The wedge is so tight that we only see 2% between breakout and breakdown. I do still like the idea of a long AMLP play, but I expect we’ll see a period of consolidation,” reports Timothy Collins for TheStreet.com.
[related_stories]The MLP ETF includes a group of dividend growing partnerships. Held pointed out that the underlying names in AMLP grew their distributions at a faster rate last quarter for the third quarter in a row. As witnessed in other areas of the market, dividend growth stocks and ETFs have outperformed in the long run, whereas dividend cutters have historically underperformed. AMLP outperformed many other MLP-related exchange traded products for the past year and 3-year periods.
Related: Master Limited Partnership ETFs Are Back on Trend
Investors should also monitor AMLP’s relationship with the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures. Data out Thursday indicate U.S. oil production, which slipped for an 11th week, hit its lowest level since September 2014, further supporting the inventory drawdown. Crude production dipped 24,000 barrels per day to 8.77 million, but the number of active oil rigs in the U.S. remained unchanged at 318 last week, the least amount since October 2009.
Regarding USO, “AMLP shows a strong but not perfect relationship. If we look at the 20-day correlation measurement near the bottom of the chart below, we’ll see it is often strong, running 0.75 or greater, but there are clearly periods of divergence,” according to TheStreet.com.
For more news on MLPs, visit our MLP category.
ALPS Alerian MLP ETF
