We have started to see a bottoming process in the energy space begin to take hold. Limitations in crude oil production by OPEC and non-OPEC energy producers appear to have stabilized the supply to markets. In addition, demand is performing a bit better than forecast. As a result the US WTI (West Texas Intermediate) benchmark has recently stabilized in the neighborhood of $50 per barrel. This is despite the negative effects of recent hurricanes on refinery operations. A more stable environment for crude oil prices would be helpful for the energy complex, including master limited partnerships (MLPs). Partnerships have been creative in forming joint ventures and otherwise stabilizing their balance sheets. Valuations still appear attractive. The yield, at 7.65% (9/15/17)1, is appealing when compared to the 10-yr. US Treasury bond at 2.19% (9/15/17). The yield spread between the two, 547 basis points (5.47%), is still wider than the 15-year average spread of 3.57%. We expect distributions for most partnerships to continue to increase at single-digit rates. These factors have led us to become positive rather than neutral on MLPs.
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