The top four MLPs
Out of Enterprise Products Partners (EPD), Energy Transfer Partners (ETP), Magellan Midstream Partners (MMP), and Williams Partners (WPZ), the four largest MLPs by market capitalization, WPZ has outperformed the other three so far in 2017. However, all the four MLPs are in the red year-to-date. MLPs didn’t follow the recent recovery in crude oil prices. On a year-to-date basis, crude oil prices are up nearly 7%, while the Alerian MLP ETF (AMLP) is down nearly 17%. Notably, the SPDR S&P 500 ETF (SPY) (SPX-INDEX) is up 16% year-to-date.
Weakness in MLPs
As the chart above shows, AMLP continued a downward trend over the last three months, even when crude oil prices were rising. The Energy Select Sector SPDR ETF (XLE), a representative of the broader energy sector, outperformed AMLP during this period.
In 4Q17, crude oil prices have risen nearly 11%, whereas AMLP is down 7%. XLE is up nearly 2% so far in the quarter. While some seasonal and structural factors, tax-loss selling, and uncertainty over tax reform are believed to have caused the underperformance, it remains to be seen how MLPs fare in the rest of December and in 2018.
Notably, the top four MLPs that we’ll discuss and analyze in this series together form nearly 38% of the Alerian MLP ETF. Enterprise Products Partners, the largest MLP in the US by market capitalization, was formed in 1998. It provides midstream services for natural gas, NGL (natural gas liquid), crude oil, and refined products. Energy Transfer Partners primarily provides natural gas midstream services including transportation and storage. It also provides NGL transportation, storage, and fractionation services. It is also involved in crude oil and refined products transportation, terminalling, and marketing.
Williams Partners primarily provides natural gas gathering, processing, storage, and marketing services. It also provides NGL fractionation and transportation. Magellan Midstream Partners provides midstream services related to petroleum products. Magellan is not into natural gas operations.
Outlook for oil prices in 2018
The EIA’s (Energy Information Administration) November 2017 short-term energy outlook forecasts WTI (West Texas Intermediate) crude oil prices to average $51 per barrel in 2018. The prices averaged $43.3 per barrel in 2016 and $50.3 per barrel so far in 2017. So, the WTI crude oil prices are expected to improve only marginally in 2018.