Breakdown of OPEC+ Ushers in Tough Times for Midstream
We see several negative implications for U.S. midstream, and we expect to reduce our fair value estimates substantially.
|Editor’s note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.|
The breakdown of OPEC+ and Russia over the weekend (March 7-8) pushed the oil markets into turmoil. When combined with the expected oil demand destruction from COVID-19, this is a extremely challenging environment for midstream. We see several negative implications for U.S. midstream, and we expect to reduce our fair value estimates substantially. We also plan to increase our uncertainty ratings across the space. Overall, we expect the industry outlook to be fairly bleak for the next 1-2 years. We agree that the midstream space is more defensive than most within energy, and we'd favor names that are more exposed to gas and are generating substantial amounts of excess cash such as Energy Transfer, Kinder Morgan, and Cheniere. However, selected oil-exposed industry leaders such as Enterprise Product Partners and Magellan still remain attractive and have the balance-sheet flexibility to pivot accordingly.
|Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.|