What’s Driving Genesis Energy’s High Correlation With Crude Oil
Genesis Energy (GEL), a midstream MLP with high crude oil exposure through its crude oil, NGL (natural gas liquid), and refined product logistics and marketing business, has the ninth-highest correlation with crude oil among MLPs. GEL’s correlation with crude oil was 0.437 as of October 6, 2017.
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Genesis Energy’s high correlation with crude oil could be attributed to its exposure through its crude oil and refined products service business, which is part of its onshore facilities and transportation segment. The segment includes crude oil acquisition and marketing, as well as refined products blending services. The partnership aims to mitigate some of this risk through better inventory management, hedging, and tight controls. GEL, like most midstream MLPs, also has indirect exposure to crude oil through crude oil production, which drives the partnership’s throughput volumes.
Of the analysts covering Genesis Energy, 50% recommended “buy,” 40% recommended “hold,” and 10% rate recommended “sell.” Robert W. Baird last upgraded GEL from “neutral” to “outperform,” which is equivalent to “buy.” Overall, GEL saw six rating updates in 2017, with two upgrades and four downgrades. GEL is currently trading below the low range ($31) of analysts’ target prices. GEL’s average target price of $35.50 implies a ~35% upside potential from its current price. In the next article, we’ll discuss the correlation between Tallgrass Energy GP (TEGP) and crude oil.