Crestwood Equity Partners (NYSE:CEQP) has been insanely volatile this year. Units of the master limited partnership plummeted along with crude prices earlier this year. However, they've staged an epic comeback over the past couple of months, fueled by a significant improvement in the oil market.

The MLP could have further to run if the market keeps improving. That upside potential likely has investors wondering if now's a good time to buy, especially since it yields an enticing 14%. Here's a look at the case for and against buying Crestwood these days.

An oil storage complex with pipelines.

Image source: Getty Images.

The bull case for buying Crestwood Equity Partners

The main draw of Crestwood Equity is its sizable distribution. The MLP is one of the few in its sector that has maintained its payout. It was able to hold the line on its payout because it entered this turbulent period with a strong financial profile. It currently generates enough cash to cover its payout as well as expected capital expenses. On top of that, it has a reasonable leverage level and no debt maturities until 2023.

It also took additional steps earlier this year to enhance its financial flexibility. These actions included reducing its capital expenses by $40 million and cutting its operating costs by a similar amount. Those moves should help offset some of the near-term impacts of lower oil prices on its cash flows.

One of the biggest unknowns has been how much the slump in oil prices would impact the volume of oil and gas flowing through its various midstream systems. However, with crude prices recovering sharply in May, U.S. oil companies have restarted their oil pumps this June. Meanwhile, a resumption in drilling activities could follow later this year. This rebound suggests the worst could be over for the oil industry, which could drive an improvement in Crestwood's volumes later this year.  

The bear case against Crestwood Equity Partners

One of the biggest concerns with Crestwood Equity Partners is its exposure to financially challenged producer Chesapeake Energy (OTC:CHKA.Q). The oil and gas company has already hired advisors to explore bankruptcy options. While the primary objective of bankruptcy would be to restructure Chesapeake's debt, the company could also attempt to rework service contracts, including those with Crestwood.

Another major concern with Crestwood is its leverage ratio. The company initially anticipated that its cash flow would surge this year as it benefited from recently completed expansion projects. The expected rise in cash flow had the company on track to push its leverage ratio from 4.1 times at the end of last year to between 3.5-4.0 times in 2020.

However, with oil prices cratering earlier this year, it will put pressure on Crestwood's volumes and earnings. On top of that, the company spent $160 million to acquire some NGL storage terminal assets from Plains All American Pipelines. While that acquisition will generate between $35 million to $40 million of cash flow over the next year, Crestwood's debt level has increased. Because of these two factors, the company now expects leverage to rise to a range of 4.25 to 4.75 times this year, which is well above its sub-4.0 times target level.

Verdict: Crestwood is still too risky for income investors to buy right now

While Crestwood currently believes it can maintain its high-yielding payout, it's on shaky ground because of its exposure to Chesapeake and its leverage. That's why income investors should avoid buying this MLP for now. It's better to wait until there's more clarity on Chesapeake's future as well as how much lower oil prices will impact Crestwood's volumes and leverage ratio than to buy now and have those factors force it to reduce its payout. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.