How Did the Rise in Crude Oil Prices Impact MLPs?



US crude oil prices

NYMEX near-month WTI (West Texas Intermediate) crude oil futures prices rose 3.3% in the week ending November 27. WTI prices closed at $41.7 per barrel on Friday—compared to $40.4 per barrel for the week ending November 20. Brent’s first-line futures prices rose 0.4% to $44.9 per barrel last week from $44.7 at the end of the previous week.

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Impact of crude oil prices on MLPs

US crude oil prices impact energy MLPs differently. While upstream companies are affected directly by fluctuations in crude oil prices, the impact on midstream MLPs is more indirect. Some midstream companies derive part or all of their revenue from fee-based contracts.

However, oil prices may have an indirect impact on the volumes. The above graph shows the weekly movement in crude oil futures prices over six weeks.

Energy outlook

In its Annual Energy Outlook 2015, the EIA (U.S. Energy Information Administration) predicted that the US crude oil production will grow until 2020. Pipeline MLPs like Genesis Energy (GEL), Plains All American Pipeline (PAA), Rose Rock Midstream (RRMS), Sunoco Logistics Partners (SXL), and Western Refining Logistics (WNRL) should all benefit from the expected growth. Plains All American Pipeline forms ~6% of the Global X MLP ETF (MLPA).

In its STEO (Short-Term Energy Outlook) report released on November 10, the EIA forecasted that Brent prices would average $54 per barrel in 2015 and $56 per barrel in 2016. The 2015 estimated price didn’t change from last month’s STEO. However, the 2016 estimated price is $2 per barrel lower. On average, WTI prices are expected to remain $4 per barrel below Brent prices in 2015 and $5 per barrel below Brent prices in 2016.

US crude oil prices are expected to remain volatile amid uncertainties related to the Iranian supply, global consumption growth, and the response from non-OPEC (Organization of the Petroleum Exporting Countries) countries to low oil prices.


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