Crude Oil Recovery: Which Midstream Companies Are Set to Gain?



Correlation with crude oil

Last week, US WTI (West Texas Intermediate) crude oil surged above $40 per barrel. Now investors are asking how this will impact their investments. Investors also want to know which midstream companies (AMLP) may gain from a possible recovery in oil prices. To find out, let’s have a look at the correlation of these stocks with crude oil and natural gas prices.

Enbridge Energy Partners (EEP) stock and near-month WTI crude oil futures price had a correlation coefficient of 0.95 over the last 12-month period. This indicates a high positive correlation between the two. The correlation between EEP and WTI was also high over the last six-month and 30-day periods. The high correlation means that a recovery in oil prices could mean a higher stock price for EEP. But it also means that EEP shares could remain under pressure as long as crude oil prices remain weak.

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The above table shows the correlation of select midstream stocks with near-month WTI crude oil futures prices. Similar to EEP, Plains All American Pipeline (PAA), MPLX (MPLX), and Enterprise Products Partners (EPD) had a high correlation with WTI over the last one-year period. All these MLPs have significant crude oil operations.

ONEOK’s (OKE) high correlation is likely due to its exposure to NGL (natural gas liquids) prices, which are mainly driven by crude oil prices.

Shell Midstream’s low correlation

Shell Midstream (SHLX) had a relatively lower correlation with WTI compared to other selected companies. In fact, its coefficient over the six-month and 30-day periods was negative. This indicates that the stock’s price may not be that sensitive to the movements in crude oil prices.

TC Pipelines (TCP), Spectra Energy (SE), and Spectra Energy Partners (SEP) have significant natural gas businesses. It’s interesting to note that natural gas-focused TC Pipelines has a high correlation with WTI prices.

Next, let’s take a look at the correlation of the selected stocks with natural gas prices.


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