While oil prices have declined in recent weeks, energy stocks and ETFs have remained resilient, posting double-digit gains.
WTI oil prices fell 13.0% – from $99.50 to $86.53 – between July 5 and August 16. Meanwhile, during the same period, the total return of the Alerian MLP Infrastructure Index (AMZI) was +18.5% and that of the Alerian Midstream Energy Select Index (AMEI) was +15.3%, according to VettaFi. Both indexes have outperformed the Energy Select Sector Index (IXE) during that period, which is up 10.1% on a total return basis.
“Even as oil prices fell in July and have dipped below $90 per barrel in August, energy stocks, including midstream names, have held up well,” Stacey Morris, head of energy research for VettaFi, said. “Tailwinds for energy infrastructure since early July include positive dividend announcements, strong 2Q22 results, and a broader market rebound. Earnings season saw several examples of companies beating consensus forecasts and raising full-year financial guidance. Natural gas prices have also seen notable gains since July, which can be beneficial for midstream companies focused on natural gas gathering and processing.”
Despite volatility in energy markets, midstream companies continued to build on their track record of positive dividend trends with their latest payouts. For the fourth straight quarter, there were no dividend cuts across the Alerian energy infrastructure index suite, according to Morris. The majority of names maintained their payouts sequentially, as increases tend to be biased to 4Q and 1Q payouts, but there were still notable examples of growth concentrated among MLPs, reinforcing the positive outlook for the sector.
Comparing 2Q22 payouts with 2Q21, more than 80% of the Alerian Midstream Energy Index (AMNA) and the Alerian MLP Index (AMZ) by weighting have grown their payouts, Morris said.
The recent signing of the Inflation Reduction Act into law also has positive implications for midstream. The changes included in the Inflation Reduction Act may help advance early-stage carbon capture and hydrogen projects that involve repurposing existing infrastructure, Morris added.
There may also be benefits for energy infrastructure companies in the tax credits and grants to support biofuels and related infrastructure. Midstream companies are involved in blending renewable fuels and have the infrastructure in place today that facilitates the use of biofuels, according to Morris. Credits may help incentivize production, translating to higher volumes for midstream companies to transport or blend.
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vettafi.com is owned by VettaFi, which also owns the index provider for ENFR and AMLP. VettaFi is not the sponsor of ENFR and AMLP, but VettaFi’s affiliate receives an index licensing fee from the ETF sponsor.