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Energy Transfer Partners: Sharp Decline in Crude Oil Prices

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Dec. 4 2020, Updated 10:52 a.m. ET

Energy Transfer Equity and crude oil

US crude oil fell 5.0% on July 11 to end at $70.4 per barrel. The sharp cut came following resumed crude oil supplies from Libya. The decline in crude oil could weigh on Energy Transfer Equity’s (ETE) stock performance. Energy Transfer Equity, the MLP GP of Energy Transfer Partners (ETP), usually has a strong correlation with crude oil. The one-year correlation coefficient between Energy Transfer Equity and crude oil was 0.49 as of July 11.

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Energy Transfer Equity tends to have a higher correlation with crude oil during a decline in crude oil prices—compared to a rise in crude oil prices. Energy Transfer Equity, which depends on its subsidiaries for distribution income, isn’t expected to see a significant increase in its distributable cash flows until gains in crude oil prices translate into distribution growth at its subsidiaries. A decline in crude oil prices raises concerns about Energy Transfer Equity’s subsidiaries’ future distributions.

The upside for Energy Transfer Equity could be capped if crude oil breaches its recent highs. However, the downside risk is significant if crude oil prices see a steep decline.

Energy Transfer Equity’s YTD performance

Energy Transfer Equity has risen ~25% from its YTD (year-to-date) lows. Energy Transfer Equity has entered into positive territory for 2018 following the recent rally. Energy Transfer Equity continues to outperform the Alerian MLP ETF (AMLP). Energy Transfer Equity has gained 1.5% since the beginning of 2018, while AMLP has fallen 5.8%. Plains GP Holdings (PAGP) has risen 6.6%, while Williams Companies (WMB) has lost 9.8% in 2018.

Series overview

In this series, see whether Energy Transfer Equity can continue its strong momentum amid crude oil weakness. We’ll discuss Energy Transfer Equity’s technical indicators and price forecast. We’ll discuss the company’s distribution yield, relative valuation, and analysts’ recommendations.

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