Midstream Energy ETFs Prove Resilient Amid Crude Oil Drop

The midstream energy segment is standing out for its resilience as oil prices face downward pressure following this week’s landmark U.S.-Iran peace deal. WTI crude oil dropped 15.5% from June 10 through June 16, falling from $90.03 per barrel to $76.05 per barrel. While broader energy took a hit, midstream proved its defensiveness.

Key Takeaways

• Midstream energy infrastructure ETFs outperformed broader energy funds during a 15.5% drop in crude oil prices.
• The sector’s resilience is driven by fee-based business models and relative insulation from day-to-day commodity price moves.
• Midstream ETFs provide attractive yields, with indexes for AMLP and ENFR yielding 7.3% and 4.7%, respectively.

Defensive Strength in Midstream Energy

Midstream’s recent stability highlights the segment’s tendency to hold up better than other subsectors during periods of oil price volatility. Midstream companies utilize fee-based business models, which means they display lower sensitivity to commodity price swings, supporting steady cash flows. 

It’s important to note that midstream’s outlook isn’t strictly tied to the front month of the commodities curve. Instead, the greater focus should be the forward curve, which producers use to determine capital expenditure budgets and future drilling plans. WTI crude futures for 2027 are roughly $10 per barrel higher than at the start of this year, albeit prices have dipped below $70 per barrel in recent days. 

While the broader Energy Select Sector SPDR Fund (XLE) declined 5.0% on a total-return basis from June 10 through June 16, midstream ETFs proved more resilient. The Alerian MLP Infrastructure ETF (AMLP) fell just 3.6%, while the Alerian Midstream Energy Select ETF (ENFR) declined a modest 2.6%. ENFR benefited from defensive performance from large Canadian names and a greater tilt toward natural gas infrastructure.

Major integrated oil components dragged down broader funds, evidenced by Exxon (XOM) — which comprises over one-fifth of XLE’s total weighting — sliding roughly 4% in a single trading session this week and falling almost 6% over the period discussed.

Pockets of concentrated weakness did emerge within the midstream segment, particularly among liquefied natural gas (LNG) names. Venture Global (VG) and NextDecade (NEXT) underperformed during the recent multi-day pullback on peace talks as international LNG benchmarks fell. However, VG and NEXT are still up 63% and 38%, respectively, year-to-date through June 16 with the stronger backdrop for U.S. LNG exports.

Midstream Energy ETFs Offer Defensive Value

Midstream’s defensive qualities include more stable cash flows and healthy yields. The generous income offered by midstream investments can help offset some market volatility.

The Alerian MLP Infrastructure Index (AMZI), which underpins AMLP, is yielding 7.3% as of June 16. AMLP is the largest MLP ETF and the second-largest overall energy ETF, offering concentrated exposure to energy infrastructure MLPs.

Meanwhile, the Alerian Midstream Energy Select Index (AMEI), tracked by ENFR, is yielding 4.7% as of June 16. ENFR provides diversified exposure to North American midstream energy infrastructure corporations and MLPs, operating as the lowest-cost ETF in the energy infrastructure segment. 

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vettafi.com is owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for AMLP, and ENFR for which it receives an index licensing fee. However, AMLP, and ENFR is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of AMLP, and ENFR.

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