MLPs had their best week since early August, outpacing the broader equity markets as energy commodity prices stabilized. The Alerian MLP Index was up 3.4%. U.S. domestic oil price finished the week with back to back positive trading sessions to close the week up 1.2%.
Expect volatile oil price trading next week ahead of OPEC’s 11/27 meeting, when some expect OPEC will announce production cuts to support pricing. If WTI oil drifts up to $80, it should be a nice tailwind for MLPs. But even if oil prices revert back into the producer comfort zone of $85/bbl+ in the next few weeks, this selloff has woken the market up to the fact that demand for oil globally has a limit.
The Kinder family of MLPs will go away next week. It’s all over but the taxes now. This week was a nice bookend to the KMI transaction, because it was the best week for MLPs since the week the KMI deal was announced.
Alerian removed KMP and EPB from the MLP indices as was largely expected, but Alerian didn’t take this opportunity to expand the number of stocks included in the index. With more than 120 energy MLPs trading today, a hard cap of 50 seems outdated in some respects, but so does the Dow Jones Industrial Average. Chances are if the cap wasn’t expanded beyond 50 with the ex-Kinder rebalance, it won’t be expanded any time soon.
If you enjoyed this week’s rebalancing act, more index changes are in the offing the next few months, as a byproduct of consolidation. OILT was added this week, but once EPD acquires the remaining units, OILT will need to be replaced. WPZ and APL will also need to be replaced in the coming months as their respective mergers close. The special rebalancing events will continue to be short term stock price drivers for MLPs that get added or see their weights grow. Between IPOs, consolidations and rebalances, the sector continues to be as dynamic as ever.
Winners & Losers
None of the biggest winners and losers announced any company specific new this week. NGL was the biggest winner from the Alerian announcements this week, benefitting from a step up from the Alerian MLP Index into the more exclusive Alerian MLP Infrastructure Index, which includes only 25 stocks and is tracked by the biggest MLP ETF. NKA continues to be very volatile, up 38.6% after falling 15% last week. NKA is still down 51% so far this year and sports a 24% yield. On the downside, shipping MLPs were hit hard by a downgrade early in the week, many of them recovered but HMLP and DLNG did not.
With less than 30 trading days left in 2014, PSXP holds a narrow lead on the sector for year to date returns. TCP popped into the top 5 this week, displacing DM, on improving sentiment for the long-dormant TCP drop-down story.
News of the (MLP) World
Energy Transfer’s analyst day was the news focus early in the week. ETP did not disappoint, announcing a new large scale growth project plus asset shuffling involving IDRs and the Bakken pipeline project. ETP also filed a fresh ATM, joined by MWE and OKS who also filed ATMs. No marketed equity offerings, no MLP IPO filings and no big M&A announced this week. Expect limited equity offerings in the next week, followed by a flurry of activity after Thanksgiving. Later in the week, the focus shifted to the fallout of the Alerian MLP Index changes as a result of the KMI consolidation transaction.
M&A / Growth Projects