With U.S. oil production continuing to grow, the case can be made to invest in midstream.
OPEC+ could extend the voluntary cuts of 2.2 million barrels per day (MMBpd) past the second quarter, the organization suggested last month. The voluntary cuts have been an attempt to prop up the price of oil and are part of 5.86 MMBpd cuts the organization has put in place since late 2022. It is important to note that the cuts are to quotas, not the actual production.
See More: OPEC+ Subtracts – What Investors Need to Know
Midstream Benefits
Nevertheless, stronger oil prices resulting from OPEC+ cuts benefit U.S. energy companies, and U.S. production continued to grow early this year, according to the Energy Information Administration. For midstream/MLPs, higher production volumes can translate to more transportation and storage fees.
The Alerian Energy Infrastructure ETF (ENFR) holds assets in key energy infrastructure companies in North America. This includes companies such as Energy Transfer LP (ET) and Enbridge Inc. (ENB) among others. As of May 1, 2024, 19.25% of ENFR’s holdings are in petroleum pipeline companies.
ENFR tracks the Alerian Midstream Energy Select Index (AMEI). It’s a cap-weighted, float-adjusted, and capped index that primarily invests in North American midstream companies.
The fund is up 9.76% on a year-to-date basis as of May 1, 2024, with its NAV rising 15.05% in 2023. The fund has provided a trailing 12-month yield of 5.18% as of May 1, 2024, according to ALPS Advisors.
Potentially Stronger Energy Sentiment
An MLP-focused strategy could also provide investors with the potential to benefit from stronger energy sentiment related to higher oil prices and growing oil production. The Alerian MLP ETF (AMLP) offers investors access to midstream MLPs. ALPS Advisors notes that 33.31% of AMLP’s holding are in the petroleum pipeline sector, as of May 1, 2024.
See More: AMLP Sees Continued Inflows in April
AMLP tracks the performance of the Alerian MLP Infrastructure Index (AMZI). The index is float-adjusted, capped, and cap-weighted, and invests in MLPs that primarily generate cash flow from midstream operations.
Much like ENFR, AMLP is also seeing good results. ALPS Advisors data shows that the fund has a trailing 12-month yield of 7.41%, as of May 1, 2024.
vettafi.com is owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for AMLP and ENFR, for which it receives an index licensing fee. However, AMLP and ENFR are not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of AMLP and ENFR.
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