VettaFi Head of Energy Research Stacey Morris speaks to Thomas Warner from Proactive about recent developments in the midstream sector of the energy industry, before looking to the future.
Morris says that in 2023, despite a broader challenging environment in the energy market, the midstream sector performed well with the Alerian Energy Dividend ETF index rising by 12.8%, in contrast to other benchmarks. This success was attributed to the sector's ability to generate substantial free cash flow and reward investors through dividends and buybacks.
Morris anticipates a similar trend in 2024, with midstream companies continuing to focus on free cash flow and investor returns. She highlighted the defensive nature of these investments, noting their reasonable returns and an attractive yield of about 6.9%.
Regarding oil prices, Morris predicts a range-bound scenario for 2024, with US oil prices likely hovering around $70 to $80 per barrel. This forecast aligns with the median market consensus. The market appears amply supplied, with OPEC+ playing a key role in maintaining price stability.
Geopolitical risks remain a potential driver for price fluctuations. Morris also emphasises the midstream sector's potential for dividend growth, which is particularly appealing to investors seeking income independent of fluctuating interest rates.
She cited recent dividend increases and stock buybacks by major companies in the index as indicators of the sector's robust health and investor-friendly approach.