Data as of November 30, 2018 unless otherwise noted
Performance (total returns)
| Benchmarks | November 2018 | YTD |
| Alerian MLP Index (AMZX) | -0.83% | -3.38% |
| Alerian Midstream Energy Select Index (AMEIX) | -0.08% | -8.99% |
| ICE BofAML U.S. High Yield Energy Index (HY Energy) | -3.58% | -2.52% |
| S&P 500 Energy Index (S&P Energy) | -1.65% | -6.21% |
Performance data quoted represents past performance and is no guarantee of future results. An investment cannot be made directly in an index.
Oil prices plummet while energy assets fall more modestly: Crude oil prices saw their worst monthly percentage decline in a decade during November, with West Texas Intermediate crude falling 22% during the month. Energy equities held up rather well considering the magnitude of the move, with midstream indices down less than 1% and S&P Energy shedding 1.65%. HY Energy had its worst month since February 2016, affected by the commodity sell-off as well as broader pressure in the high yield bond markets. Global oversupply has driven WTI crude prices from a three-year high of $76/bbl to around $50, as all-time high U.S. shale production has resulted in a 46-million-barrel increase in U.S. crude inventories in the past two months.1,2 Russia and OPEC have also steadily increased their supply over the past year, and the IEA projects a global oversupply of more than 1 million barrels/day in 2019. OPEC and its partners will decide before year-end whether a production cut is warranted for next year.1,2
Midstream company results continue to belie market performance: The decline in oil prices has hit energy assets to varying degrees. Integrated oil companies and E&Ps, which typically trade more in lockstep with commodity prices, have fallen more than midstream equities.1 However, one could argue energy infrastructure investments continue to be undervalued, given sector financial performance. Q3 performance was stellar for midstream companies; 100% of AMEIX constituents maintained or increased their distribution for Q4 compared to Q3, while 67% of firms beat median earnings expectations.3 For the AMZX those numbers were 89% and 50%, respectively. Despite these results, the sector has underperformed the broader equity markets this year and over the past three years. We believe that in a market where many assets look expensive, midstream energy is a space worth considering. The energy infrastructure space continues to trade well below its long-term average earnings multiples, offers above-market yield in a low-income environment, and has proven that it offers some protection against commodity volatility compared to other areas of the energy market. Sustained positive company performance and a steadying of the oil market could set the midstream sector up for gains going forward.1
Key takeaways
- Energy assets fell as crude prices dipped more than 20%.
- Crude oil fell to $50/bbl in its largest percentage monthly decline since 2008 amid increasing concerns about a global supply glut.
