Crude oil prices
The NYMEX (New York Mercantile Exchange) near-month WTI (West Texas Intermediate) crude oil futures prices fell 3.1% in the week ended September 11. WTI prices closed at $44.63 per barrel on Friday compared to $46.05 for the week ended September 4. Brent first-line future prices fell 3.0% to $48.14 per barrel, from $49.61 at the end of the previous week.
WTI prices rose on Thursday on the reports of a fall in Cushing inventories. However, oil prices fell on Friday on oversupply concerns when a Goldman Sachs (GS) report suggested a strong bearish outlook for crude oil prices. According to the report, in a worst-case scenario, the oil price may fall to as low as $20 per barrel.
Effect of crude oil prices on MLPs
Crude oil prices affect energy MLPs differently. While upstream companies are affected directly by fluctuations in crude oil prices, the impact on midstream MLPs is more indirect. This is because some midstream companies derive part or all of their revenues from fee-based contracts.
However, oil prices may have an indirect impact on volumes. The above graph shows the weekly movement in crude oil futures prices over the past six weeks.
In its Annual Energy Outlook for 2015, the EIA (U.S. Energy Information Administration) predicts that US crude oil production will grow until 2020. Pipeline MLPs such as Enterprise Products Partners (EPD), Enbridge Energy Partners (EEP), Sunoco Logistics Partners (SXL), Plains All American Pipeline (PAA), Rose Rock Midstream (RRMS), and Western Refining Logistics (WNRL) should all benefit from the expected growth. PAA forms ~2.3% of the First Trust North American Energy Infrastructure Fund (EMLP).
In its STEO (Short-Term Energy Outlook) report released on September 9, the EIA forecast Brent prices to average $54 per barrel in 2015 and $59 per barrel in 2016. These are lower than the July STEO estimates, but unchanged from the last month’s estimates. WTI prices are expected to remain $5 per barrel below Brent, on average, in both 2015 and 2016.
Crude oil prices are expected to remain volatile amid uncertainties relating to Iranian supply, global consumption growth, and the response from non-OPEC countries to low oil prices. Downward pressure on crude oil prices may also occur in the immediate future due to the start of the fall refinery maintenance season.