Ever hear of Crestwood Equity Partners (NYSE: CEQP), Oasis Midstream Partners (NYSE: OMP), and Hess Midstream Partners (NYSE: HSM)? Probably not and because of that most investors might have missed the fact that these high-yielding master limited partnerships have been running hot this year. But while all have delivered strong returns in 2018 investors may want to continue to monitor new developments closely.
Crestwood Equity Partners, for example, has been running this year, gaining nearly 55% due to clear signs that the once-struggling MLP is not only back on more sound ground but could be ready to see accelerated growth. Steering that view is the company’s backlog of high return growth projects that it anticipates will fuel a more than 15% compound annual growth rate in earnings and cash flow over the next three years. These projects include a number of new natural gas processing plant expansions as well as the continued buildout of its oil and gas gathering systems across several fast-growing shale regions in the U.S.
Units of Oasis Midstream have jumped more than 33% in 2018, which is the MLP’s first full year as a public company. Pushing that return has been the more than 50% boost in the MLP’s earnings over the past year, aided by an uptick in volumes of oil, natural gas, and water flowing through its gathering systems. That growth has allowed Oasis Midstream to increase its distribution to investors by a 20% annualized rate in the last year so that it now yields more than 7%.
Hess Midstream Partners has benefited from a strong year, delivering a gain of nearly 20%. Helping the pipeline company’s return has been its own uptick in the volumes flowing through its pipelines, processing plants, and storage terminals, which have come in higher than anticipated as a result of rising oil prices. That better-than-anticipated growth enabled the company to boost its cash flow guidance range from $87 million-$92 million up to $91 million-$96 million. It also allowed Hess Midstream Partners to increase its distribution to investors by 15% over the past year so that it now yields 5.9%.
More to Come?
While Crestwood Equity, Hess Midstream, and Oasis Midstream have all delivered strong gains this year, that doesn’t mean investors have completely missed out on the upside that energy stocks have presented thus far. That’s because all three, as well as many others, are showing clearly visible growth potential. With that combination of upside opportunity and high yields, MLPs could continue to beat the market in the years to come.
Why Were Refining Stocks Under Pressure In May?
Last month, many industries went into turmoil and one of those was the oil refinery industry. This was due to the global events that shook up the capital markets. Some of the better-known oil refiner stocks like Marathon Petroleum (MPC), Phillips 66 (PSX) and Valero Energy (VLO) took a nosedive. According to information from S&P Global Market Intelligence, the declines for the month ranged from 12% to 23%.
There is a number of factors which are responsible for the decline in oil refinery stocks for the month of May. Perhaps the biggest reason is the escalating trade tensions between the United States and China.
It was in May that the talks broke down between the two nations and the tariff wars started yet again. The trade standoff has resulted in a significant drop in the demand for refined oil products. Consequently, the profit margins of the major oil refinery companies were hit.
However, in addition to the trade war with China, the United States had also threatened to impose tariffs on Mexican goods if the immigration issue was not tackled. That was another negative trigger for oil refinery stocks since a hike in tariffs would force Mexico to send a lower quantity of crude oil to the United States and the refinery companies would need to look at more expensive sources. On top of that, the current issues in the middle east have not helped the matter either.
The major companies in the industry reported significant drops in their earnings, with Valero’s earnings nose-diving by 41%, while Phillips 66 recorded a 50% drop in earnings. On the other hand, Marathon Petroleum earned $11.17 for each barrel in the first quarter as opposed to analysts’ estimates of $13.85 per barrel. The margins were hit due to higher oil prices.
Despite the troubles that the companies went through in May, the future may not be as gloomy. One analyst stated that Valero and Phillips 66 could be a good prospect for investors since the stocks are being weighed down by trade issues rather than any fundamental problem with margins. In fact, JP Morgan has already upgraded Valero and classified it under overweight.
Where Will Oil Go After This Week’s Price Hit?
Even though oil had been taking a beating over the last 2 trading sessions, its price rose to $69 per barrel on Friday. However, oil prices are experiencing the worst week of 2019 mainly due to potential economic slowdown and ever-growing oil inventories. US oil inventories have not been this high since July of 2017. And to top it all off, the trade war between the US and China is growing wearier every day further affecting oil prices.
Naeem Aslam, the chief market analyst at TF Global Markets, stated, “Clearly, bargain hunters are back in town.” He later added, “However, it is still set to record the worst week of the year and this is due to the increase in trade war tensions between the U.S. and China.”
The global benchmark for oil, Brent Crude, has experienced a decrease of 5 percent this week. However, Brent Crude this morning climbed $0.98 to value each barrel at $68.74. Due to US sanctions and voluntary supply cuts, a floor under prices held. Market analysts are expecting the oil market to recover off of the price floor.
“It is reasonable to doubt whether Saudi Arabia will be willing to step up its output given the latest decline in prices, […] we therefore expect to see higher oil prices again in the near future,” Explain analysts at Commerzbank.
In order to make the market tighter, the Organization of the Petroleum Exporting Countries has been cutting oil supplies since the beginning of the year.
Brent Crude’s prices reflect that the supply and demand of oil is tightly knit. According to UBS, Brent Crude should get back to $75 this month as supply gets tighter and tighter.
“Compliance of OPEC and its allies to the production cut deal remains high, while production from Iran and Venezuela is likely to again trend lower this month,” explains analyst Giovanni Staunovo,
Renewable Energy Drives Power And Utility Merger Activity
As has been advocated by a range of energy experts across the world, renewable energy could be positioned to go mainstream. More are pushing to save the planet from things like global warming. As of now, the indications are there that at a global level, renewable energy is growing.
According to available data, the renewable energy market was the frontrunner in the global energy market. The biggest reason for the growth was strategic mergers and acquisitions. It is a particularly significant development. The fact remains: mergers and acquisitions have largely slowed down across the world within the industry.
According to a report by global consultancy firm Ernst & Young, “Power Transactions and Trends for the first fiscal quarter of 2019,” renewable energy mergers and acquisitions grew at an impressive rate. The total value of mergers and acquisitions rose by $3.7 billion from the fourth quarter of 2018.
It is noteworthy that the mergers and acquisitions in this niche accounted for a whopping 61% of all deals in the power and utility industry in Q1 2019. At the same time, mergers and acquisition activity had declined at a global level in the quarter. This decreased by as much as 33% from the $20.4 billion in Q4 2018.
Despite the overall decline in the merger and acquisition activity, executives are confident that things will pick up soon. According to an industry-wide survey, 92% of the executives believe that economic growth at a global level is going to increase. The same percentage of executives also think that the power and utility sector itself will grow in the coming months.
It’s far more important to point out that 97% of the respondents in the survey stated that they are going to make major investments this year. Much of that might go towards modern technology.
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