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Energy Stocks

Look to the Midstream for Protection and Opportunity

By Elliott H. Gue, on Jun. 28, 2017

After OPEC and other major oil-producing countries agreed to curb production in fall 2016, specialist and generalist portfolio managers alike bet heavily on West Texas Intermediate (WTI) rallying to at least $60 per barrel this year.

This shot of confidence prompted investors to move down the quality chain in the search for value and alpha, with marginal equities rallying hard and high-yield energy bonds acting as though the 2014 collapse in oil prices was an aberration, never to be repeated.

However, in 2017, the story has shifted to how the surge in US oil output and stepped-up drilling and completion activity in prolific shale plays—abetted by upstream operators’ aggressive hedging when WTI fetched more than $50 per barrel—have threatened to overwhelm the extended OPEC and non-OPEC supply cuts.

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