In a recent report, Oppenheimer analysts gave their outlook for the energy sector in 2015. Not surprisingly, one of the major topics of discussion was the collapse of crude oil prices. Analysts gave their take on the situation moving forward and noted their top two crude oil-related picks for investors.
Tight Brent/WTI Spread
In the report, analysts note that a wide Brent/WTI spread produced a very favorable, high-margin environment for refiners and crude oil infrastructure master limited partnerships (MLPs) in 4Q2013. However, the spread consistently narrowed throughout 2014, falling from $11.92 at the end of 2013 to only $3.78 by the end of 2014.
Analysts predict that the Brent/WTI spread will continue to be depressed by low overall crude oil prices.
LLS More Relevant For MLP Investors
Louisiana Light Sweet (LLS) crude oil price, which has historically tracked Brent prices closely, appears to have decoupled from Brent during 2014. Analysts believe that this decoupling reflects a supply glut in the U.S. Gulf Coast that has resulted from an increase in supply from Cushing, Oklahoma, due in part to growing pipeline capacity.
Analysts argue that the LLS/WTI spread (rather than the Brent/WTI spread) should now be the relevant reference price for MLP investors.
Crude Oil Contango
After an extended period of backwardation, analysts point out that the crude oil futures curve is once again in a state of contango. This transition should be good news for companies currently storing crude oil, and it provides incentive to purchase oil at current prices and sell it forward.
Stock Picks
Oppenheimer’s top two crude oil-related stock picks are Plains All American Pipeline, L.P. PAA 0.49% and Tesoro Logistics LP TLLP 0.46%.
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