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Why Hi-Crush Partners Units Surged More Than 20% in January

By Matthew DiLallo - Updated Apr 26, 2019 at 10:23AM

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Several factors combined to fuel the frack sand producer last month.

What happened

Hi-Crush Partners(HCRS.Q) wild ride continued last month. Units of the frack sand producer had been up more than 40% at one point in 2018 but plunged alongside crude prices over the final few months of the year, ending down more than 66%. However, with oil bouncing back in January, it provided a boost to Hi-Crush Partners, which rallied 21.2% for the month, according to data provided by S&P Global Market Intelligence.

So what

Oil prices jumped 18% in January as the efforts of OPEC and others to stabilize the oil market started paying off. Oil inventory levels, which rose throughout the fourth quarter, started falling in January, which relieved some of the pressure that had been weighing on oil prices. That helped calm investor fears that oil companies would significantly slash spending on new wells, which would further cut into demand for the frack sand that Hi-Crush produces.

Earth-moving equipment moving sand from a big pile

Image source: Getty Images.

The plunge in crude prices to end 2018, however, did have some impact on frack sand demand. Hi-Crush reported in early January that sales volumes in the fourth quarter fell 29% compared to the third quarter as well completion activity slowed. As a result, the company suspended its quarterly distribution to investors.

On a more positive note, Hi-Crush secured new contracts with several drillers that will start up during the first quarter. That allowed it to resume operations at its Whitehall facility while idling them at its Augusta plant to better serve market needs. Because of these new contracts, the company sees volumes improving during the first quarter and they could continue increasing throughout the year if oil prices cooperate.

Check out the latest Hi-Crush earnings call transcript.

Now what

Hi-Crush Partners' operations are highly sensitive to changes in the oil market. Investors saw that as crashing crude prices at the end of 2018 caused a nearly 30% plunge in its volumes while an 18% uptick in oil last month enabled it to lock in several new contracts that should boost volumes in the current quarter. Because of that sensitivity, investors need to steel themselves for continued volatility since it's unclear what direction oil prices will take in the coming months.

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