Hot MLP Play: Plains All American

The marketing segment's operations generally consist of the following: The purchase of U.S. and Canadian crude oil at the wellhead and the bulk purchase of crude oil at pipeline and terminal facilities, as well as the purchase of foreign cargoes; the storage of inventory; the purchase of refined products and LPG from producers, refiners and other marketers; the resale or exchange of crude oil, refined products and LPG; and the transportation of crude oil, refined products and LPG.

Plains All American is a good buy now. The current contango in the crude oil market will allow PAA to profit from its dominant storage position in Cushing, Okla. Simply stated, contango occurs when the current futures price is trading for less than longer-dated futures.

Currently crude oil futures for Jan. 09 are $40.83 a barrel, while Dec. 09 futures are $57.10. It costs about 70 cents per bbl per month to finance and store crude, so clearly every trader with the wherewithal to do this trade will put it on.

PAA benefits in two ways from this. Traders will want to lease its tanks and PAA's marketing segment can exploit the contango itself by doing the same trades. Recently oil companies have leased supertankers to act as waterborne storage tanks to lock in contango profits. Cushing is the delivery point for the NYMEX WTI crude contract.

PAA also benefits from the importation of crude oil into the U.S. from Canada via its Rainbow, Rangleland and Manito systems, and the Gulf of Mexico via its 22% interest in the Capline system.