Yahoo Finance 3 Midstream Stocks Poised to Benefit as Geopolitical Tensions Rise
As geopolitical tensions between Iran and Israel escalate, the global energy markets are once again on edge. Recent developments, including Iranian missile strikes on Tel Aviv and Israel’s ground operations in southern Lebanon, have rattled investor confidence. The rising fear that the conflict in the Middle East could disrupt supply from key oil-producing nations has already triggered a surge in oil prices.
The effects of market volatility are generally more subdued for the midstream energy sector, which plays a critical role in transporting and storing oil and natural gas. These companies' operational models are designed to offer stability, largely insulated from fluctuating commodity prices. In the current climate of uncertainty, midstream firms are proving their resilience by maintaining steady revenue streams through long-term contracts, even as oil prices spike.
Stability in Unstable Times
Midstream energy companies, which manage essential infrastructure like pipelines and storage facilities, typically operate under long-term "take-or-pay" contracts. These contracts guarantee that shippers, such as oil producers, pay for reserved capacity regardless of how much they use it. This framework ensures that midstream firms receive stable revenues, independent of short-term shifts in oil prices or demand fluctuations.
This unique model allows midstream players to secure predictable cash flows and earnings, even during market turmoil. As oil prices climb due to concerns over supply disruptions, midstream companies can benefit from increased production activity and higher throughput in their pipelines without being directly exposed to the volatility of oil prices.
Leveraging Oil Price Increases
While midstream firms are generally insulated from price swings, rising oil prices can still create growth opportunities. In particular, higher oil prices encourage producers to ramp up output, especially in the key U.S. basins like the Permian. This, in turn, drives the volumes transported by midstream companies and boosts the demand for storage services, as producers may choose to hold onto crude until prices peak.
By capitalizing on the increased production and transportation activity, midstream companies can see revenue growth through higher tariffs on their pipelines and enhanced utilization of storage assets.
Midstream Leaders: EPD, MPLX & HESM
Enterprise Products Partners EPD: With a substantial portion of its revenues coming from long-term, fee-based contracts, EPD remains largely insulated from commodity price volatility. The company's extensive crude oil pipeline infrastructure, particularly in the Permian Basin, positions it to benefit from increased production activity as oil prices rise.
MPLX LP MPLX: Through its strong partnership with Marathon Petroleum Corporation MPC, MPLX secures consistent revenues via long-term agreements with minimum volume commitments. This predictable income stream, combined with its expansive network of pipelines in key U.S. regions, allows MPLX to capitalize on higher oil prices through increased throughput and demand for storage services.
Hess Midstream HESM: Generating nearly all its revenues from long-term, fee-based contracts with Hess Corporation HES, Hess Midstream is shielded from commodity price fluctuations. HESM’s predictable income model, combined with increased production by Hess in times of higher oil prices, provides growth opportunities tied to greater volumes across its infrastructure.
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Enterprise Products Partners L.P. (EPD) : Free Stock Analysis Report
Hess Corporation (HES) : Free Stock Analysis Report
Marathon Petroleum Corporation (MPC) : Free Stock Analysis Report
MPLX LP (MPLX) : Free Stock Analysis Report
Hess Midstream Partners LP (HESM) : Free Stock Analysis Report
