Leaky Pipes: The Coming Midstream Meltdown

The current thinking on midstream MLPs is that they offer insulation against oil and gas prices and a rich yield in a low-rate environment. We think this thesis gets the actual fundamentals of the current hydrocarbon space wrong, and that the midstream MLP business represents a prime short opportunity in a macro setting that only looks to get uglier in the medium term.

The massive collapse in oil prices that occurred in the middle of 2014 changed the fundamentals across markets. Like all such changes, it has produced coping strategies. One such has been focused on investment in master limited partnerships (MLPs) operating midstream assets. …

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