After briefly spiking above $51/bbl, WTI crude oil prices are back down under $47 following six consecutive days of declines and a weak U.S. stock draw this week. According to D.A. Davidson analyst John Rogers, oil and gas investor shouldn’t sweat the recent pullback.
“Optimism is building that non-OPEC production is finally declining and the seeds have been sown for an improvement in the supply/demand balance,” Rogers explained.
Despite the recent weakness, he noted many MLPs are still trading near 2016 highs. He noted the average yield of the AMZI MLP benchmark is 7.5 percent. The index’s yield spread of 5.8 percent creates a positive skew for investors in light of the Fed’s recent postponement of the next rate hike.
D.A. Davidson also has a bullish outlook for natural gas prices as well.
“Natural gas demand fundamentals look attractive into next year with the waning El Niño, the shift in the power market away from coal, increasing petrochem demand, and expanding exports, both to Mexico and globally with LNG,” Rogers said.
Among oil and gas MLPs, D.A. Davidson’s top pick is Enterprise Products Partners L.P. EPD.
The firm is also bullish on Genesis Energy, L.P. GEL, Magellan Midstream Partners, L.P. MMP and Spectra Energy Partners, LP SEP.
Disclosure: The author holds no position in the stocks mentioned.
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