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: Units of Legacy Reserves LP (NASDAQ:LGCY) are up 12% today. The rally is largely being fueled by the rising price of oil as crude was up more than 2.5% by the early afternoon. This is really the continuation of a trend. In just the past week alone Legacy Reserves' units are up 43% as the recent rally in the price of oil has really provided some relief to Legacy Reserves' unit holders.
So what: With the price of crude oil appearing to put in a near-term bottom it's providing support for oil-focused companies like Legacy Reserves. Units of the upstream master limited partnership have been decimated by the slumping price of oil and were down as much as 70% over the past year. This sell off was largely fueled by investor fear as they worried that the company wouldn't be able to maintain its very generous cash distribution. Investors are also worried about the company's balance sheet as it has over $900 million in debt, which is about the size of the company's current market value after the robust rally over the past week. Higher oil prices helps to ease these fears as the company will have more cash flow in the future to meet its financial obligations.
Now what: While the oil price rally helps Legacy's business, its not meaningful unless its sustainable. Because of this, and the company's smaller size, its units will continue to be volatile when the price of oil makes a big move.