Midstream Finding Its Stride as Oil Rallies | ETF Trends

Last week, oil prices notched their eighth straight weekly gain and now reside around seven-year highs. Some midstream assets are proving responsive to the oil rally.

For example, the ALPS Alerian MLP ETF (NYSEArca: AMLP) gained 4% last week and is up 10.42% over the past month. Those are impressive statistics and could prove meaningful with midstream third-quarter earnings season on deck.

“The midstream crude oil sector enters the third-quarter earnings season stuck, well, in the middle between surging commodities prices and the producers’ fiscal discipline that has prevented much of a trickle-down to the companies that move, process and store the liquids,” according to S&P Global Platts.

While AMLP, the largest exchange traded fund dedicated to master limited partnerships (MLPs), is up 42% year-to-date, some analysts say that midstream is currently an interesting position. The segment is in something of a holding pattern as the world embraces renewable energy and as some investors wait for the midstream to better reflect oil market ebullience.

With midstream companies reining in spending, bolstering balance sheets, and buying back stock, third-quarter earnings season could be a catalyst for midstream operators, including some AMLP components. Some analysts believe that upcoming midstream earnings reports could deliver positive guidance from operators and perhaps plans to better capitalize on high oil prices and demand.

According to S&P Global Platts: “We may see a change of tone come 2022 guidance,” said AJ O’Donnell, product team director for East Daley Capital. “With an $80 price, it’s hard not to add rigs in the Permian.”

As for projects, there are some pipeline plans to be completed, but the U.S. is already seen as overpiped, so it’s unlikely that AMLP member firms will announce new large-scale oil and gas projects during earnings season. On the project front, what may be of interest to investors is any commentary offered by midstream operators regarding efforts to forge further into renewable energy — some midstream companies are already doing that. These companies have the assets and experience to move and store new energy types, and those assets are seen as essential to improving the dependability of renewable sources.

Other funds with exposure to income-generating energy assets include the VanEck Vectors Energy Income ETF (EINC) and the Global X MLP ETF (NYSEArca: MLPA).

For more news, information, and strategy, visit our Energy Infrastructure Channel.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.