Author: Hinds

It was a largely uneventful, unremarkable week in midstream.  Stock prices swung around with sentiment around oil and broader equities.  Canadian midstream again held up better in a negative tape, resulting in slightly better performance for the Alerian Midstream Energy Index vs. the AMZ or the AMUS.

Given the relative calm for midstream transactions, it’s a good week to talk midstream benchmarking.  As discussed at length here and in more formal whitepapers, MLPs aren’t as dominant in the midstream business as they once were.  Tracking performance of the midstream sector, therefore, is no longer as easy as tracking the Alerian MLP Index.  A new benchmark is needed.

Midstream traded up this week, participating pari passu with the broad rally in utilities and broader equities.  Midstream earnings were impressive again (especially ET, LNG and TRGP), the Colorado Proposition 112 was voted down, and natural gas prices spiked.  Those positive factors helped midstream trade well in the face of deteriorating oil prices.

Midstream was positive this week, led by non-MLP midstream stocks, which outperformed MLPs (AMNA +1.2% vs. AMZ -0.3%).  Midstream slightly outperformed utilities (UTY -0.8%), helped by a bounce back in broad equities and a strong set of 3Q results from big midstream players.  Midstream performance was impressive given the precipitous decline in oil prices this week, a 14 bps increase in the U.S. 10-year yield.  Midstream also had to contend with seasonal ex-date volatility and month-end window-dressing immediately ahead of an election week.

Things got out of hand this week all over the equity markets.  Recent relative strength of midstream/MLPs vs broader equity markets failed this week, although month-to-date midstream (AMNA -7.3%) remains ahead of the S&P 500 (-8.8%) and well ahead of the rest of the energy sector (XLE -12.2%).

Midstream had another strong relative performance this week. The MLP Index was flat week over week, on par with the S&P 500 (which also miraculously finished the week virtually unchanged). Broader North American non-MLP midstream outperformed, led by Canada, OKE and KMI. The broader energy sector was hit by lower oil prices and underperformed (XLE -2%).

Midstream sold off along with most things this week, but as a whole did slightly better than the broad stock market, outperforming for a second straight week.  MLPs were the best performing group in midstream, benefitting from their renewed obscurity more than a flight to safety.  Just like when the S&P 500 is going up, the market seems pre-occupied with itself, rather than paying much attention to midstream and certainly not MLPs.

Midstream and MLPs had their best day in a few months on Monday (AMZ +2.2%). They struggled to hold those gains the rest of the week, but did finish +1.8% vs. last week, inline with the utilities. Utilities followed a different path to +1.8%, selling off early in the week and rallying to close out the week. With interest rates shooting higher, price action for both midstream and utilities action went against traditional expectations, while the S&P 500 (-1%) and REITs (-3% this week) experienced a more conventional selloff.

As if stuck on repeat, oil and natural gas were up, midstream was down this week. The S&P 500 paused its upward trajectory, and utilities were negative for a second straight week.  Income securities had a rough month generally, and it feels like midstream is being painted with the “income stock” brush rather than the “energy stock” brush. 

Another up and down week in midstream, but this time midstream corporations were up and MLPs were down, although the move was small in both directions. Midstream outperformed utilities, which sold off on higher interest rates.  The S&P 500 beat both midstream and utilities.