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Breitburn Energy at 52-Week Low on Crude Price Weakness

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Units of Breitburn Energy Partners LP slipped almost 6% yesterday, touching a 52-week low of $2.22. The decline followed the weakness in crude price. Most importantly, the partnership’s unit has plunged more than 67% year to date.    

What Led to the Unit Price Decline?

To the disappointment of most analysts, the recent U.S. Energy Department's weekly inventory release showed an unexpected rise in crude stockpiles. On top of that, the news that most of the refineries have started to close their plants for planned maintenance took a toll on oil prices. These are reflected in West Texas Intermediate (WTI) crude’s price of $41.14 per barrel, which has more than halved from the above $100 per barrel mark during the middle of last year.

Of course, the news is not good for the energy players involved in the exploration and production of oil resources like Breitburn Energy Partners. This is because the partnership generates cash flows after selling the commodity. Since crude price is extremely weak, the partnership is not being able to generate significant earnings.

Another reason for the slide in Breitburn Energy might be its rising operating expenses in an unfavorable business scenario. During the second-quarter 2015 result announcement, the partnership’s total cost related to its operation came at $115.8 million, almost 40% higher than the April–June 2014 figure of $83.1 million.

All these are also reflected in the partnership’s current Zacks Rank #5 (Strong Sell), implying that the stock is expected to significantly underperform the broader U.S. equity market over the next one to three months.    

Stocks That Warrant a Look

While we expect Breitburn Energy to perform below its peers and industry levels in the coming months and see little reason for investors to own the stock, one can look at Alon USA Energy Inc. , Seadrill Partners LLC and Mitcham Industries Inc. . Each of these stocks sports a Zacks Rank #1 (Strong Buy).

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