What's Next for Oil and Midstream ETFs Like 'ENFR'?

With oil prices soaring, some analysts believe higher output isn’t far behind. Yet many producers are likely to show some restraint, and that’s a big positive for midstream assets like the Alerian Energy Infrastructure ETF (ENFR).

The ALPS ETF tracks the Alerian Midstream Energy Select Index (CME: AMEI). ENFR acts as a type of hybrid energy infrastructure ETF, which helps investors capture some of the high yields from MLPs while limiting the tax hit from solely owning MLPs. Part of the good news for the sector is that some well-known investors are revisiting energy equities.

“Sustained higher oil prices likely will encourage U.S. producers to increase production this year, which could eventually weigh on prices, J.P. Morgan analysts say, now forecasting U.S. crude output to exit 2021 averaging 11.78M bbl/day, 710K bbl/day more than a year earlier,” reports Seeking Alpha.

‘ENFR’ Getting Energetic?

A rosier outlook for economic growth and oil demand could fuel gains in energy sector-related exchange traded funds this year.

According to the Organization of Petroleum Exporting Countries’ recent monthly report, the global oil demand forecast was upwardly revised by as much as 200,000 barrels a day, the Wall Street Journal reports.

“At current prices, most U.S. onshore operators are economic, leaving a vast group of operators, from large public companies to private players, in good position to ramp up activity in H2 and build solid momentum for higher volumes in 2022,” adds JPMorgan.

Investors can look to the midstream market and the ENFR ETF for more compelling cash flow-generating prospects. Free cash flow is the cash a company has left over after accounting for capital spending. It’s a vital evaluation metric in capital-intensive industries such as energy. Fortunately, the outlook on this front is bright for midstream names.

ENFR is higher by almost 25% year-to-date.

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).

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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.