Master limited partnerships and sector-related exchange traded funds surged Thursday as crude oil markets enjoyed their best single-day rally on record.
Among the best non-leveraged ETFs of Thursday, the Global X MLP ETF (NYSEArca: MLPA) jumped 22.6%, ALPS Alerian MLP ETF (NYSEArca: AMLP) increased 23.2% and JPMorgan Alerian MLP Index ETN (NYSEArca: AMJ) advanced 17.6%.
Meanwhile, West Texas Intermediate crude oil futures were up 25.7% to $25.4 per barrel on Thursday, a day after WTI plunged 24.4% to settle at a more than 18-year low of $20.37 per barrel, marking the oil market’s third-worst day on record.
KKM Financial’s Jeff Kilburg argued that Thursday’s move higher was due to the “rubber band” effect where “prices are elastic and this is the snapback of a historic oversold condition in WTI,” CNBC reports.
Scott Nations, President and Chief Investment Officer at NationsShares, mirrored the argument, adding that sentiment had become too negative.
“Crude was wildly oversold, with a Relative Strength Index which got below 14, the lowest I’ve ever seen for any commodity, and we’ve now decided that maybe the global economy isn’t going to come to an end,” Nations told CNBC.
WTI futures also regained ground after the U.S. Energy Department put out a request to buy up 30 million barrels of crude from domestic producers.
While commodity traders may be wary of potential volatile swings in the energy market, income-minded investors may look to MLPs as a more stable play on the rebound in the crude oil markets.
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.
The businesses of transporting crude oil is also booming. Despite the plunge in oil prices, U.S. energy producers are pumping more crude than ever. According to the U.S. Energy Information Administration, U.S. crude output hit 13.1 million barrels a day last week, the Wall Street Journal reports.
For more information on master limited partnerships, visit our MLPs category.