Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: The old saying that a rising tide lifts all boats is true not just for boats and water, but for the price of oil and oil stocks, too. That is abundantly clear today as the rising tide of crude oil's price is lifting the battered boats of oil stocks, with beaten down Breitburn Energy Partners L.P. (NASDAQOTH:BBEPQ) up over 18% by mid-afternoon, its second straight day of double-digit gains.
So What: That said, it's hard to get too excited by the relief rally in oil prices, which are up 16% in the past three days, as oil is known for its crazy volatility. However, as long as oil prices are heading higher it will take oil stocks up with it, with those really beaten-down stocks when oil collapsed late last year rising above the rest. That's certainly the case with BreitBurn Energy Partners, which, despite the recent rally, is still more than 60% off its 52-week high.
One of the reasons why BreitBurn Energy Partners was crushed by falling oil prices last year was because its balance sheet is weighed down by debt. This weight caused investors to fear that it, as well as other heavily indebted oil stocks, will default on that debt should oil prices remain low for more than a year. One of the easiest fixes for this problem would be a sustained rally in oil prices as it would provide oil companies like BreitBurn with more cash flow to ensure that debt doesn't sink them.
Now What: Only time will tell if oil prices will return to their previous levels any time soon. Because of that oil stocks like BreitBurn will continue to remain very volatile and could continue to make double-digit moves whenever oil makes a big move.
Matt DiLallo has no position in any stocks mentioned, but he does have plenty of oil stocks so he is enjoying the rally in oil stocks. The Motley Fool recommends BreitBurn Energy Partners. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.