MLP Monthly Report: July 2021

The July MLP Monthly Report can be found here offering insights on MLP industry news, the asset class’s performance, yields, valuations, and fundamental drivers.

The latest quarterly MLP Insights piece providing analysis into the midstream space can be found here as well.

Summary

News:

1) US energy firms continued to add oil and gas rigs as oil prices reached their highest in almost two and a half years. The oil and gas rig count, an early indicator of future output, rose by 4 to 479 for the week ended July 9, the highest since April 2020.

2) Magellan Midstream Partners, L.P. (MMP), Enterprise Products Partners L.P. (EPD) and Intercontinental Exchange, Inc. (ICE) announced a new joint futures contract, the Midland WTI American Gulf Coast contract (HOU), for the physical delivery of crude oil in the Houston area. This is likely due to rising investor demand for Houston based futures contracts.

3) OPEC+ reached an agreement after a dispute between the United Arab Emirates (UAE) and Saudi Arabia had delayed the production adjustment. OPEC+ agreed to increase output each month starting in August by 400,000 barrels a day through the end of 2022. The deal will add around 2% to the world’s supply by end of the year.

Sources: Reuters, Enterprise Products Partners L.P., Magellan Midstream Partners, L.P.

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, increased 4.44% last month. The index has increased by 61.94% since last June. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 7.63%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (4.60%), Fixed Rate Preferreds (4.09%), Emerging Market Bonds (3.85%), and Investment Grade Bonds (2.09%).1 MLP yield spreads versus 10-year Treasuries currently stand at 5.92%, higher than the long-term average of 5.73%.2 (Sources: Bloomberg and Fed Reserve)

Valuations: The Enterprise Value to EBITDA ratio (EV-to-EBITDA), which seeks to provide more color on the valuations of MLPs, increased by 1.16% last month. Since June 2020, the EV-to-EBITDA ratio is up by approximately 1.65%. (Source: Bloomberg)

Crude Production: The Baker Hughes Rig Count increased to 479 rigs, increasing by 4 rigs from last month’s count of 475 rigs. US production of crude oil increased to 11.100 mb/d in the last week of June compared to May levels of 10.800 mb/d. (Source: Baker Hughes & EIA)

For performance data current to the most recent month- and quarter-end, please click here

As of 6/30/2021, Magellan Midstream Partners, L.P. (MMP) was a holding in the Global X MLPA ETF (MLPA) with a 7.59% weighting and Global X MLP & Energy Infrastructure ETF (MLPX) with a 4.03% weighting. Enterprise Products Partners L.P. (EPD) was a holding in the MLPA ETF with a 9.62% weighting and MLPX ETF with a 4.36% weighting.

MLPA ETF and MLPX ETF do not have any holding in Intercontinental Exchange, Inc. (ICE) and American Gulf Coast contract (HOU).