A Clever Way to Play MLPs for Energy Income

Key Points:

• Significant drop in oil prices due to weak demand and oversupply.
• Traders are using a dual strategy: shorting gasoline and going long on crude oil.
• Master Limited Partnerships (MLPs) offer high yields, and the Alerian MLP ETF (AMLP) provides an alternative without K-1 tax complications.
• Also: There is a changing of the guard, and The Next Nvidia is ready to soar

Doug and Lee discuss the unexpected drop in oil prices, which have fallen from around $90 to $70. They explore potential reasons for this decline, including weak demand from China and an overabundance of supply. The conversation highlights the complexities of the oil market, with traders shorting gasoline and distillates while being long on West Texas Intermediate and Brent crude. They also suggest that now might be a good time for investors to consider big oil companies or Master Limited Partnerships (MLPs), which offer high yields and are less affected by spot pricing. However, they caution about the complications of MLPs, such as receiving K-1 forms, and recommend the Alerian MLP ETF (AMLP) as an alternative that avoids this issue.

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Edited Video Transcript:

So we’ve had a big change in oil prices, which I don’t think was necessarily expected.

Now, oil was pushing ninety bucks earlier in the year.

Now it’s back down in the direction of seventy.

Demand is weak.

Is that China?

I don’t know.

There’s an overabundance of supply.

So why is oil down this much?

Because it’s down by sort of a crazy amount in a short period of time.

Yeah.

And it’s dropped dramatically.

It’s down big.

It’s down the biggest.

It’s at the lowest level now.

It has been in the last.

You know, it’s interesting because I read an interesting thing that traders, they’re shorting gasoline and distillates, but they’re long, you know, it’s kind of a double trade where they’re long West Texas Intermediate and they’re long Brent.

You know, a lot of it, I think, Doug, is that demand has always been the big issue.

And of course, the demand is here in China.

And, you know, that tends to go back and forth and back and forth.

And it’s interesting.

The only reason it’s spiked up recently is because of the hurricane that’s out on the Gulf that’s supposed to, you know, you know, hit southern Louisiana like the day we are recording this.

So I think it’s interesting.

And I think for our readers and our viewers, now’s a good time to take a look at some of the big oils or.

And we wrote about this recently at twenty four seven of the big MLPs because they don’t really care as much about the spot pricing because they’re all on contract to, you know, enterprise and energy transfer.

They’re all on big contracts with the gigantic E&P guys.

And so our viewers may want to take a look at some of those those companies because they’re yielding anywhere from six to nine percent.

And it’s very, very safe, safe.

Yeah.

The only problem with buying MLPs and let’s put this in it as a caveat, because we’ve written about them for years at twenty four seven is you do get the dreaded K-1, which is sometimes, you know, very late in the process.

It’s a it’s a indication of what’s been paid to you from the partnership.

And, you know, sometimes you got to get into their archives and you got to find them.

And so there’s a way you can buy the Alerian fund, which is AMLP and you don’t get the dreaded K-1.

It holds twelve or fourteen MLPs and you get a regular.

That makes it somewhat more attractive.

Yeah, it is.