While commodity traders may be wary of potential volatile swings in the energy market and the heavy hand of the OPEC cartel in adjusting prices, 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.
Given the rising volume of U.S. oil production, with the U.S. Energy Information Administration projecting it could top 10 million barrels per day by February and even hit 11 million per day by the end of next year, investors may be better served with looking at MLPs or energy toll roads or the companies that provide necessary infrastructure to transport the increased oil flows.
MLPs don’t make their money based on oil or gas prices. Unlike other energy sector stocks, 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.
Investors interested in gaining MLP exposure can look at options like the VanEck Vectors High Income MLP ETF (NYSEArca: YMLP) and VanEck Vectors High Income Infrastructure MLP ETF (NYSEArca: YMLI). YMLP shows a 8.49 12-month yield while YMLI has a 7.34% 12-month yield.
The JPMorgan Alerian MLP Index ETN (NYSEArca: AMJ) and the ALPS Alerian MLP ETF (NYSEArca: AMLP), the two largest MLP-related exchange traded products. AMJ has a 6.96% 12-month yield, and AMLP has a 7.95% 12-month yield.