ETE’s and ETP’s market performance
Energy Transfer Equity (ETE) and Energy Transfer Partners’ (ETP) stock performance was weak during the second quarter of 2017. The gains during the first quarter were more than offset during the second quarter. ETE and ETP fell 9.0% and 15.9% during the quarter. Overall, ETE and ETP have lost 7.6% and 14.3% since the beginning of 2017. At the same time, the Alerian MLP ETF (AMLP), which comprises 25 midstream energy MLPs (master limited partnerships), has fallen 4.9%.
ETE and ETP are underperforming AMLP by 270 bps (basis points) and 940 bps, respectively. ETE’s and ETP’s weak performance during the second quarter could be mainly attributed to the volatility in commodity prices and negative updates on partnerships’ major projects. We’ve talked about ETP’s project hurdles in the previous part of this series.
Crude oil prices
Crude oil prices remained volatile during the quarter, impacting the market performance of MLPs with high crude oil exposure. Crude oil prices averaged $48.1 per barrel during the second quarter of 2017 compared to $45.6 per barrel during the same quarter in the prior year. The average correlation between ETE and crude oil was 0.35 in 2Q16, and it has risen to 0.58 in 2Q17. At the same time, the correlation between ETP and crude oil prices rose from 0.41 to 0.49.
The increased correlation could be attributed to investor concern about crude oil prices falling again to under $30 per barrel, considering the ever-growing crude oil supplies. For more details on recent trends in crude oil production, read US Crude Oil Production Near 2-Year High.
ETP, which has crude oil exposure through the natural gas midstream business, will likely experience a sharp decline in earnings at sub-$30-per-barrel levels. Moreover, drilling activity will most likely come down at these prices levels, impacting ETP’s throughput volumes. ETE, which depends on ETP and Sunoco LP (SUN) for distribution income, could have an adverse impact on earnings at these price levels. SUN’s earnings, to some extent, are linked to movement in refined product prices.