Midstream Stocks Ride Out Crude Price Volatility
The ongoing U.S.-Iran conflict is creating uncertainty in crude oil pricing, causing West Texas Intermediate crude to hover around $90 per barrel after previously trading above $100. However, not all stocks are vulnerable to these price fluctuations. Midstream players like Kinder Morgan, MPLX LP, and The Williams Companies have a resilient business model that shields them from commodity price risks.
Midstream companies generate stable fee-based revenues since their transportation and storage assets are booked by shippers for the long term. This makes their business model relatively low-risk compared to oil and gas producers. Kinder Morgan, with its vast network of 78,000 miles of oil and gas pipelines, derives most of its earnings from take-or-pay contracts.
MPLX LP's midstream business also generates stable cash flows from long-term contracts with shippers, while The Williams Companies connects premium basins in the United States to key markets through its pipeline networks spanning over 30,000 miles. WMB's assets meet a significant proportion of the nation's natural gas consumption.
Zacks Investment Research has given Kinder Morgan and MPLX LP a Zacks Rank of #3 (Hold), indicating that they are likely to grow on the back of their business model, which is resilient to volume and commodity price risks.