In this issue:

Continuing the last issue’s discussion about the current advantages of midstream income plays, we highlight six already paying off in our portfolios. With one exception, these are well diversified industry giants, and all six are shielded from the swings in energy prices over the medium term by contracts securing long-term cash flow.

And speaking of those price swings, crude’s recent rebound has investors buying energy stocks at prices last seen when oil was fetching close to $80 a barrel. Growth in global demand will eventually justify that price again, but there’s downside risk in the near term, because prices have been supported by aggressive stockpiling that can’t continue for much longer as the available storage capacity fills up.

We’re maintaining a relatively defensive stance at the moment, favoring midstream and downstream names that tend to hold up better (and in many cases actually fare better) when crude prices are low. On that score, it’s nice to see that oil tanker operator Frontline (NYSE: FRO) has gained 13% since we recommended it in the last issue. As perhaps the cheapest play on growing demand for floating crude storage, it should have plenty more in the tank, so to speak.

On the flip side of the coin, the domestic coal industry’s woes have grown more woeful still as cheap natural gas siphons off demand from utilities. Our only coal pick to date, Alliance Holdings (Nasdaq: AHGP), has bucked the trend for a long time thanks to its low cost mines and long-term supply contracts. But a recent customer defection from an above-market-price contract, citing new environmental curbs on airborne mercury pollution set to take effect April 15, could prove the proverbial coal mine canary.

We think even  this top-notch coal producer now poses more risk than reward. Sell AHGP.    

Portfolio Update

• Alliance Holdings (NASDAQ: AHGP) sold from Growth Portfolio

• National Oilwell Varco (NYSE: NOV) buy limit reduced to $60 in Conservative Portfolio

Commodity Update

Crude prices continue to strengthen, with West Texas Intermediate (WTI) trading up more than 10% to $52.64 per barrel (bbl) from our previous issue. While crude oil inventories in the U.S. are high and continue to grow, WTI for November and December delivery this year is trading back above $60/bbl. It is likely that the current price surge is a result of traders anticipating some relief in crude oil inventories in the months ahead, but today those growing inventories remain a bearish signal. Brent surged even more over the past two weeks, to $61.36/bbl, a gain of $8.98/bbl (up 17% since our previous issue). The Brent-WTI spread has widened to $8.72, its highest level in nearly a year. While natural gas inventories remain in good shape, the continued snow in the Northeast helped to drive natural gas prices to $2.85/MMBtu, up $0.18/MMBtu since our last issue.

In Other News

• Oil prices staged the biggest two-week rally in 17 years, but a Bloomberg story noted that estimates of where oil is headed from here range from $20/bbl to $200/bbl

• Units of Niska Gas Storage Partners (NYSE: NKA) plummeted nearly 60% after the partnership announced the suspension of its quarterly distribution

• The U.S. drilling rig count fell for the 10th consecutive week, and is at its lowest level since March 2010    

• Barron’s reports that of the 10 sectors in the S&P 500 energy has taken in the most new money in 2015 at over $6 billion

• Following the recent surge in oil prices came downward pressure as the Energy Information Administration (EIA) reported that the already record volumes of crude oil in storage continue to climb

• The U.S. House of Representatives approved a measure in favor of the Keystone XL pipeline, sending the bill to President Obama for an expected veto