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Midstream Stocks Outperformed Broader Markets in Q1

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Crude oil prices

Crude oil prices rose ~32% in the first quarter. The strength in crude oil prices and strong fourth-quarter performances drove midstream stocks up in the first quarter. The Alerian MLP Index (^AMZ), an index of midstream MLPs, rose 16.8% on a total return basis in the first quarter. The Alerian Midstream Energy Index (^AMNA), an index of North American energy companies, rose 22.2% on a total return basis. AMNA is a broader index that includes midstream C corporations and Canadian midstream companies. In contrast, AMZ only includes MLPs.

Enterprise Products Partners (EPD), TransCanada (TRP), and Enbridge (ENB) are the top three constituents of AMNA. AMNA’s outperformance over AMZ likely indicates investors’ preference for larger, C corporation stocks instead of only MLPs as vehicles for investment in midstream infrastructure.

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The Energy Select Sector SPDR ETF (XLE) rose ~15%, while the S&P 500 Index rose ~13%. The midstream sector outperformed the broader energy sector and the broader market in the first quarter. Kinder Morgan (KMI), ONEOK (OKE), and Williams Companies (WMB) rose ~30% in the first quarter. Enterprise Products Partners rose ~18%, while Energy Transfer (ET) rose ~17% during the first quarter.

Natural gas prices

Natural gas prices fell ~9% in the first quarter. However, the longer-term trend of rising gas production is expected to benefit midstream stocks. Low inventory levels could be bullish for gas prices in the short term. Also, if the summer temperatures are higher than normal, it might increase the gas demand and support prices in the short term.

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