The October 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.
1) OPEC+ agreed to impose deep output cuts of 2 million barrels per day starting in November, expecting to spur a recovery in crude prices, despite calls from the U.S. to increase production to prop up the global economy. The move marks a significant shift in the alliance’s production policy, prioritizing price over stability when the oil market is extremely volatile. Notwithstanding concerns about the global economy’s resilience, further squeezing already-tight supplies will likely make the market even more volatile.
2) The G7 nations agreed to impose a price cap on Russian oil while keeping oil flowing to avoid price spikes. According to this plan, nations involved will refuse insurance, financing, brokerage, navigation, and other services to crude and oil cargoes that cost more than a yet-to-be-set price cap. Meanwhile, Russia has threatened to stop sales to countries that impose such caps.
3) The European Union has approved the eighth round of sanctions against Russia because of its actions in Ukraine. Among the measures being deployed are more restrictions on trade with Russia in steel and technology products and an oil price cap for Russian seaborne crude deliveries to third countries via European insurers. The sanctions will also target more individuals in Russia’s defense ministry, people involved in Moscow’s ad hoc annexation votes in occupied eastern Ukraine, and those involved in sanction evasion.
Sources: Meredith, S. (2022, October 6). OPEC+ to cut oil production by 2 million barrels per day to shore up prices, defying U.S. pressure. CNBC.; Astakhova, V, S, O; Evans, D., & Oatis, J. (2022, October 5). Russia may cut oil output if price caps introduced – Deputy PM Novak. Reuters.; Lawder, D., & Kraemer, C. (2022, September 3). G7 ministers forge ahead with Russian oil price cap, details thin. Reuters. Baczynska, G., & Blenkinsop, P. (2022, October 5). EU approves more sanctions against Russia over Ukraine war. Reuters.
Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, decreased by 7.48% last month. The index increased by 21.26% since last September. (Source: Bloomberg)
Yield: The current yield on MLPs stands at 7.80%. MLP yields remained higher than the broad market benchmarks for Fixed Rate Preferreds (6.94%) and Investment Grade Bonds (5.69%) and lower than the Emerging Market Bonds (8.16%) and High Yield Bonds (9.70%).1 MLP yield spreads versus 10-year Treasuries currently stand at 4.14%, lower than the long-term average of 5.75%.2 (Sources: Bloomberg; Board of Governors of the Federal Reserve System. (2022, September 30). Preformatted package: Treasury constant maturities [Data set]. Data Download Program.)
Valuations: The Enterprise Value to EBITDA ratio (EV-to-EBITDA), which seeks to provide more color on the valuations of MLPs, decreased by 3.87% last month. Since September 2021, the EV-to-EBITDA ratio is down by approximately 5.00%. (Source: Bloomberg)
Crude Production: The Baker Hughes Rig Count stands at 765 rigs, remained unchanged from last month’s count of 765 rigs. US production of crude oil decreased to 12.000 mb/d in the last week of September compared to August levels of 12,100 mb/d. (Sources: Baker Hughes. (2022, October 08). North America rig count.; U.S. Energy Information Administration. (2022, October 08). Petroleum and other liquids.)
For performance data current to the most recent month- and quarter-end, please click here.
Solactive MLP Infrastructure Index: The Solactive MLP Infrastructure Index is intended to give investors a means of tracking the performance of the energy infrastructure MLP asset class in the United States. The index is composed of Midstream MLPs engaged in the transportation, storage, and processing of natural resources.
S&P MLP Index: S&P MLP Index provides investors with exposure to the leading partnerships that trade on the NYSE and NASDAQ. The index includes both master limited partnerships (MLPs) and publicly traded limited liability companies (LLCs), which have a similar legal structure to MLPs and share the same tax benefits
Bloomberg US Corporate High Yield Total Return Index: The Bloomberg US Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Bloomberg EM country definition, are excluded.
ICE BofA Fixed Rate Preferred Securities Index: The ICE BofA Fixed Rate Preferred Securities Index tracks the performance of fixed rate US dollar denominated preferred securities issued in the US domestic market.
Bloomberg EM USD Aggregate Total Return Index: The Bloomberg Emerging Markets Hard Currency Aggregate Index is a flagship hard currency Emerging Markets debt benchmark that includes USD-denominated debt from sovereign, quasi-sovereign, and corporate EM issuers.
Bloomberg US Corporate Total Return Index: The Bloomberg US Corporate Total Return Value Unhedged Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes USD denominated securities publicly issued by US and non-US industrial, utility and financial issuers.
Crude Oil: Measured based on the Generic 1st ‘CL’ Future, which is the nearest crude oil future to expiration.
EBITDA: Earnings before interest, tax, depreciation and amortization (EBITDA) is a measure of a company’s operating performance. Essentially, it’s a way to evaluate a company’s performance without having to factor in financing decisions, accounting decisions or tax environments.
Average Spread: Average spread is the average of the excess of the MLPs yield over the 10 year treasuries yield.
Enterprise Value (EV): EV is a measure of a company’s total value, often used as a more comprehensive alternative to equity market capitalization.