US crude oil prices
NYMEX near-month WTI (West Texas Intermediate) crude oil futures prices rose 2.8% in the week ending July 1, 2016. WTI crude oil prices closed at $49.0 per barrel on Friday, July 1, compared to $47.6 per barrel for the week ending June 24.
In comparison, Brent oil first-line futures prices rose 4.0% to $50.4 per barrel in the week ending July 1 from $48.4 per barrel at the end of the previous week. The higher rise in Brent versus WTI resulted in the widening of the WTI-Brent spread.
Crude oil prices impact MLPs
US crude oil prices impact energy MLPs differently. While upstream companies are impacted directly by fluctuations in crude oil prices, the impact on midstream MLPs is less direct. However, a few midstream companies—such as Kinder Morgan (KMI)—also have direct crude oil exposure.
On the other hand, refining companies’ margins are expected to rise as the spread increases. The above graph shows the weekly movements in crude oil futures prices over six weeks.
In its “Annual Energy Outlook 2015,” the EIA (U.S. Energy Information Administration) predicted that US crude oil production would rise until 2020. Pipeline MLPs such as Plains All American Pipeline (PAA) should benefit from this growth.
In its STEO (“Short-Term Energy Outlook”) report released on June 7, the EIA increased its crude oil price estimates for 2016 and 2017. According to the recent report, WTI crude oil prices would average $42.8 per barrel in 2016 and $51.8 per barrel in 2017. On average, Brent oil prices are expected to remain the same as WTI in both years. The STEO might concern MLPs with higher crude oil assumption for 2016 financial guidance.