3 Midstream Energy Stocks Built to Withstand Commodity Price Volatility
The oil-energy sector remains in the spotlight after the United States and Iran reached an interim deal last week. Media reports suggest that oil flows through the Strait of Hormuz are recovering, with shipping activity picking up again. Eventually, oil prices are declining significantly, altering the business landscape of energy companies.
Notably, the West Texas Intermediate (“WTI”) oil is currently hovering around $70 per barrel, according to data from Oilprice.com, significantly lower than the more than $100 per barrel reached in May this year. This reflects the heightened volatility in commodity prices that is affecting the energy sector. However, not all stocks are being affected. Three midstream players like Kinder Morgan, Inc.KMI, MPLX LPMPLX and The Williams Companies, Inc.WMB are now well-poised to gain. Let's delve deeper.
Midstream: A Resilient Business Model
Stocks in the midstream space have lower exposure to volatility in commodity prices than oil and gas producers. This is because midstream players generate stable fee-based revenues since the transportation and storage assets are being booked by shippers for the long term. Hence, their business model is relatively low-risk, which indicates considerably less exposure to oil and gas prices and volume risks.
3 Pipeline Stocks to Keep an Eye On: KMI, MPLX & WMB
Kinder Morgan: With its operating interests in oil and gas pipeline networks spread across 78,000 miles, KMI is a leading energy infrastructure company in North America. It derives most of its earnings from take-or-pay contracts, generating stable fee-based revenues.
The midstream energy major, carrying a Zacks Rank #3 (Hold), is likely to grow on the back of its business model, which is relatively resilient to volume and commodity price risks. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
MPLX: MPLX’s midstream business comprises transporting crude oil and refined products. The #3 Ranked partnership generates stable cash flows from its long-term contracts with the shippers. Its crude oil and natural gas gathering systems also generate stable fee-based revenues.
The Williams Companies: The company is well-poised to capitalize on the mounting demand for clean energy since it is engaged in transporting, storing, gathering and processing natural gas and natural gas liquids.
With its pipeline networks spread across more than 30,000 miles, The Williams Companies, with a Zacks Rank of 3, connects premium basins in the United States to the key market. WMB’s assets can meet a considerable proportion of the nation’s natural gas consumption, which is utilized for heating purposes and clean-energy generation.
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See Stocks Now >>This article originally published on Zacks Investment Research (zacks.com).
