Direct commodity exposure
After the merger, Energy Transfer Partners’ (ETP) correlation with crude oil and natural gas rose compared to legacy Sunoco Logistics Partners. The correlation between Energy Transfer Partners and crude oil (USO) resulted in a correlation coefficient of 0.38 over the past year. The correlation between Energy Transfer Partners and crude oil rose to 0.46 over the past month.
Indirect commodity exposure
Midstream companies are indirectly exposed to commodity prices through production levels. If crude oil and natural gas prices stay low, upstream producers might cut their production or even go bankrupt, which could result in lower throughput volumes, lower earnings, and higher counterparty risk. After the merger, Energy Transfer Partners’ throughput volumes have been impacted negatively by declining production in a few regions including the Eagle Ford, Barnett Shale, and Bakken Shale. At the same time, Energy Transfer Partners continues to benefit from resilient Permian volumes. We discussed the Permian’s recent drilling activity in Part 4 of this series.