MPLX’s correlation with commodity prices
The correlation between MPLX LP’s (MPLX) stock price and the near-month WTI (West Texas Intermediate) crude oil futures price over the last three years was -0.38. The correlation has increased to 0.74 since the start of 2015.
Similarly, the correlation between MPLX and natural gas was -0.12 over the last three years. It increased to 0.71 since the start of 2015. The higher correlation since the start of 2015 coincides with the simultaneous decline in both oil and natural gas prices during this period.
MPLX has entered into multiple transportation and storage services agreements with sponsor Marathon Petroleum Corp. (MPC). These are long-term, fee-based agreements with minimum volume commitments. So, they are expected to provide relatively stable and predictable cash flows. MPC is the source of the majority of MPLX’s revenues. MPLX forms ~8.3% of the Alerian MLP ETF (AMLP), an ETF of top infrastructure MLPs.
As the above graph shows, MPLX stock did not fall starting mid-2014 along with crude oil prices. In fact, it was on an uptrend until the start of 2015, after which it remained stable for the next few months. The stock fell 15% on July 13, 2015—the day it announced merger plans with MarkWest Energy. It has followed the commodity price slide since then, likely due to MarkWest Energy’s high commodity price exposure. The fall also reflects overall negative investor sentiments for the broader energy sector.
Outlook for MPLX
A recovery in oil prices could mean a higher MPLX stock price. However, this also means that MPLX shares would remain under pressure as long as crude oil prices remain weak. Low commodity prices have impacted most infrastructure MLPs, including Plains All American Pipeline (PAA), Enbridge Energy Partners (EEP), and Enterprise Products Partners (EPD).
Expected dropdowns from MPC should support MPLX’s distribution growth in future. MPC has a dropdown portfolio of ~$1.6 billion EBITDA (earnings before interest, tax, depreciation, and amortization). Additionally, MarkWest Energy’s acquisition should also fuel MPLX’s future growth.