Tag: ARCHIVE

Midstream had a disappointing week overall.  Like last week, oil prices ramped up (albeit with strong backwardation) and MLPs under-performed broader energy stocks and utilities.  The AMZ tracked the S&P 500 with a 1.4% decline, while the AMEI outperformed due to its exposure to Canadian midstream and utilities.  Broader stock market weakness was likely a factor, along with the MLP Index re-balance and some capital markets activity in a generally thin midstream equity market these days.

We are officially finished with a pretty wild first half of the year.  As such, I thought it appropriate to break down midstream returns based on several different factors that I believe have been driving relative performance within the sector this year.

Midstream and MLPs traded well this week, but not as well as you’d expect given a 5%+ oil move and strength in income securities (like utilities).  The OPEC meeting Friday turned out to be a catalyst despite no surprise, because of how well-managed expectations were.  Oil, energy stocks and MLPs were sharply higher Friday, and the Dow finished positive for the first time in 9 days.

The week started strong, with MLPs up 1.6% Monday, but then followed up with 4 straight negative days, culminating in a big Friday selloff (-2.6%). Friday was the MLP Index’s worst day since March 19th, just a few days after the FERC ruling. It was also the worst week for the index since that same week in March. Unlike that week, there wasn’t any big midstream news that led to the drop. The action this week was more related to the macro (i.e. China tariffs, the Fed, oil prices and positioning ahead of OPEC).

Midstream corporations and MLPs finished roughly where they started this week. But along the way, on Thursday, both AMZ and AMEI reached their highest levels since mid-February. The gains through Thursday slipped away Friday and the MLP Index closed back at its 200-day moving average. Midstream held up in a bad week (within a bad year) for income securities like utilities.

Midstream and MLPs synched up this week to rally 2.7%, outperforming the S&P 500 and utilities, despite renewed oil price angst this week.  Midstream stocks and MLPs resumed their recovery after last week’s pause, and have now posted gains in 7 of the last 10 weeks.  After bottoming in late March, the AMZ and AMEI have posted total returns of 16.2% and 12.3%, respectively. The rally has helped the MLP Index break back into positive territory year-to-date, and the MLP Index closed the week almost exactly at its 200 day moving average (269.7).

Midstream traded down and underperformed utilities (+3.2%) and the S&P 500 (+0.3%), with oil price declines offering a reason for midstream to pause following a very strong couple of weeks for oil, energy and midstream. Considering XLE was down 5.5% and oil dropped 5%, midstream held up pretty well, benefiting from its considerable income component in a good week for treasuries and utilities.

Midstream overall outperformed and MLPs again led the way, up another 3.1%.  The MLP Index is now up 14.4% the last 8 weeks, rallying in 6 of those 8 weeks.  Energy and oil prices continue to trade well, with MLPs tryng to keep pace with broad energy stocks.  News flow was light until Thursday’s simplification party.  Weaker Canadian and utility performance dragged down the broader AMEI midstream index performance.

Back in November, I published a report on distribution growth (or lack thereof) across the MLP landscape.  The basic takeaway was that certain industry participants were citing numbers that seemed to exaggerate distribution growth and sweep under the rug the actual change in income felt by those who owned a diversified basket of MLPs over the last few years.  In addition, I argued that distribution yield as a valuation metric should not be considered in an environment of uncertain distributions, and instead cash flow per share and EBITDA multiples were better metrics to use.

Midstream resumed gains this week, with similar gains across MLPs, U.S. and Canadian corps.  Oil and the broad stock market rallied as well.  No surprise, but $70/bbl seems to be a positive for energy stocks broadly.  Midstream-specific sentiment has also benefitted from solid earnings season that included baby steps towards resolution of pending simplifications, de-leveraging, etc.  The MLP Index is just one more good week away from being flat for the year (including distributions).