Energy market commentary

Energy market commentary: March 2021

Energy finished off a stellar Q1 as midstream took the lead in March.

April 7, 2021 | 5 minute read

Data as of March 31, 2021, unless otherwise noted.

Performance (total returns)

BenchmarksMarch 2021YTD
Alerian MLP Index (AMZX)6.91%21.95%
Alerian Midstream Energy Select Index (AMEIX)7.08%20.72%
ICE BofAML U.S. High Yield Energy Index (HY Energy)-0.01%3.88%
S&P 500 Energy Index (S&P Energy)2.79%30.85%

Performance data quoted represents past performance and is no guarantee of future results. An investment cannot be made directly in an index.

Midstream takes the lead: After leading the U.S. equity market during the first two months of the year, the energy sector was more mixed in March as commodity prices cooled somewhat. S&P Energy climbed 2.79% in March and finished up more than 30% in Q1, compared to 4.38% and 6.17%, respectively, for the S&P 500 overall. During a month with relatively flat oil prices, midstream equities took over a leadership position in the energy sector. U.S. crude production recovered following the February winter storms, and crude rig counts continued their consistent upward climb. As such, the AMZX and AMEIX rose 6.91% and 7.08%, respectively, on an improving outlook for oil and gas production in North America. HY Energy was flat on the month, roughly matching the broader high yield index. Energy spreads fell to 461 bps, their tightest since mid-2018, offsetting rising Treasury yields. WTI crude prices declined by about $2.50 to $59.16/bbl as the demand outlook was challenged by a rising COVID-19 case count and slow vaccination rollout in Europe.1

Activity uptick beginning to show up in dataThe impact on energy demand from the pandemic was swift, and the recovery has been somewhat uneven and sporadic. Prices have been supported by OPEC+ production cuts as global activity creeps back toward pre-pandemic levels. Vaccination progress has been predictably disparate across countries, with the U.K. and Israel leading, the U.S. gaining momentum, and Europe and many emerging markets lagging. In the U.S., which accounts for about 17% of global energy consumption, activity indicators are beginning to show promise.2 Air travel, which was one of the most impacted sectors of the economy, has begun to recover—daily airline passengers have doubled from around 700,000 per day at the start of the year to about 1.5 million at the end of March.3 Delta Air Lines acknowledged the surge in demand and was recently forced to cancel about 100 flights due to staffing shortages. Requests for driving directions via Apple Maps, which had declined earlier in the pandemic, have recovered to well above pre-COVID levels, a positive sign for gasoline demand.4 While there are still headwinds to global demand from the pandemic and many countries remain well below pre-COVID activity levels, we are beginning to see green shoots appear as the calendar turns to spring.

Key takeaways

  • Energy finished off a stellar Q1 as midstream took the lead in March.
  • High frequency activity indicators have turned upward in the U.S.

  • Bloomberg Finance, L.P.

  • IEA.

  • Transportation Security Administration.

  • Apple.

Index descriptions: Alerian MLP Index is the leading gauge of energy Master Limited Partnerships (MLPs) and is a float-adjusted, capitalization-weighted index, whose constituents represent approximately 85% of total float-adjusted market capitalization. Alerian Midstream Energy Select Index is a composite of North American energy infrastructure companies and is a capped, float-adjusted, capitalization-weighted index, whose constituents are engaged in midstream activities involving energy commodities. ICE BofAML U.S. High Yield Energy Index is designed to track the performance of U.S. dollar-denominated high yield rated corporate debt publicly issued in the U.S. domestic energy market. S&P 500 Energy Index comprises those companies included in the S&P 500 that are classified as members of the Global Industry Classification Standard (GICS) energy sector.

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This energy market commentary and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The energy market commentary is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such energy market commentary. The energy market commentary should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the energy market commentary or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

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