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MLPs Ended Positive for the Second Straight Quarter

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AMZ rose 4.5%

The Alerian MLP Index, a benchmark index for energy MLPs, rose 4.5% in the third quarter of 2018. The index ended with gains for the second straight quarter. It rose 9.5% in the second quarter. The gains in Q2 and Q3 were, however, largely offset by the index’s fall in the first quarter. Year-to-date, the index was down 0.1% at the end of the third quarter. In comparison, the SPDR S&P 500 ETF (SPY) rose 7.2% in the third quarter. Crude oil prices fell ~1.2% in the third quarter. Oil prices are up ~21% year-to-date.

Enterprise Products Partners (EPD), Magellan Midstream Partners (MMP), and Energy Transfer Partners (ETP) are the top three constituents of AMZ. Together, the three form ~30.3% of the index. The above graph shows the quarterly performance of AMZ over three years.

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Performance drivers

MLPs outperformed the broader energy sector in the third quarter of 2018. The Energy Select Sector SPDR ETF (XLE), which represents the energy sector of the S&P 500 Index, fell 0.3% in Q3.

According to the U.S. Energy Information Administration, 26 of the 45 E&P (exploration and production) companies that it tracks announced an increase in their 2018 expected capital expenditure during the second-quarter results compared to the expectations at the beginning of the year. The upward revisions in expected capital expenditures likely pressured E&P stocks, contributing to XLE’s underperformance during the quarter.

In comparison, strengthening oil prices, strong Q2 results, and continued simplification in corporate structures likely uplifted midstream companies. We’ll discuss key simplification announcements during the quarter later in the series.

Learn how key MLP indicators are trending in What Do Trends in Key MLP Indicators Suggest?

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