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Why Plains All American Pipeline Has Outperformed in 2018

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Jul. 31 2018, Updated 11:10 a.m. ET

PAA in 2018

Plains All American Pipeline (PAA) stock has risen ~14% so far in 2018, outperforming many of its peers. Enterprise Products Partners (EPD) has risen ~9%, and Magellan Midstream Partners (MMP) is roughly flat YTD (year-to-date). The Alerian MLP ETF (AMLP) has fallen ~4% YTD. Crude-centric Plains All American Pipeline has largely tracked crude oil prices so far in 2018. Crude prices are up ~14% YTD.

The above graph compares the performance of Plains All American Pipeline with its peers in 2018. Despite the YTD outperformance, Plains All American Pipeline is down ~8% in a year. It had fallen significantly in 2017.

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In this series, we’ll discuss how the company might have performed in the second quarter. It will be releasing its earnings on August 7. Plains All American Pipeline is expected to benefit in the long term from the strong Permian Basin production growth and the takeaway constraints in the region. We’ll take a deeper look into that aspect in the next part of this series.

Cactus II project

Plains All American Pipeline’s proposed Cactus II pipeline will add up to 670 thousand barrels per day to Permian Basin takeaway capacity. In July, the Trump administration rejected Plains All American’s request for an exemption from the 25% tariff on imported steel pipe for the project. According to a Bloomberg report, the tariffs would add $40 million to the project’s cost. Nevertheless, the company intends to move forward with the project. The steel tariffs may impact the recovering midstream sector significantly.

Plains All American’s Cactus II project is expected to provide some relief from the Permian Basin takeaway constraints. Let’s take a closer look at it next.

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