It comes down to consumer behavior
Downstream MLPs Rise
Is there a safe haven for MLP investors when oil prices are rapidly falling? The MLP declines were broad-based last week, with only half a dozen MLPs seeing gains for the week. Two of the gainers were refining MLPs – Alon USA Partners (NYSE: ALDW) and CVR Refining (NYSE: CVRR). Like the upstream MLPs, the downstream MLPs can be very volatile, and are therefore only suitable for investors with a high risk tolerance.
But the downstream sector — where the refinery MLPs reside — is one that can rise when oil and gas prices are declining. I explained in a 2012 Energy Letter article – Rockets and Feathers – the reason for this. It comes down basically to consumer behavior.
When prices are rising, consumers are more discerning about price when filling up with gasoline. When prices are declining, they are happy enough at the falling prices that they aren’t likely to drive all over town looking for lower prices. This behavior can benefit fuel retailers, wholesalers, and refiners even as the upstream sector suffers. For more information on downstream MLPs, see my November 2013 article Don’t Give Up on the Refiners.
Although the downstream names are not an appropriate choice for conservative MLP investors, those attracted to the higher risk upstream MLPs may find the refining plays more attractive in the current environment.