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Is It Time To Buy Oil And Gas Pipeline Stocks?


This month we are taking another look at pipelines, specifically those used to transport oil and gas from the field to refineries. There is an odd disparity in the fortunes of these companies and the refiners we looked at last month, Valero Energy and Phillips 66, (NYSE:PSX). Refiners have continued a relentless upward march month over month, while most pipelines are flat to slightly higher.

I am not suggesting that there is a direct link between these two types of companies, because, although they are interdependent on each other, they have vastly different business models. That said, if you focus on the interdependence, i.e. pipelines are required to move oil and gas to refineries in order for the latter to make the refined products we all use and need, there should be some “sympathetic” price movement in one sector when the other is responding so rapidly to market forces.

Now if you were expecting me to solve this riddle for you, you are going to be disappointed. I have given up trying to prognosticate when the pipeline industry will be revalued to reflect the importance of its asset base, and the criticality of its presence in the energy security story. I still think it will happen, but it’s anybody’s guess as to when.

We are going to start thinking of pipelines as primarily income vehicles that in a rising market receive a stream of income that provides the funds flow to pay above-average distributions to unitholders. Their…

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