Thanks to innovations in production, the U.S. is now the world’s top producer of oil and natural gas. We believe many midstream master limited partnerships (MLPs) are now undervalued and will continue to be strong investment options.

Although low energy prices may slow new drilling, many existing wells can remain profitable. When commodity prices fall, energy companies tend to prioritize production at existing wells that can still compete at low prices. While production from new wells may slow, production from existing wells can remain stable or grow.

The value of some midstream MLPs may exhibit higher correlation to oil prices over the short term but correlations over the long term are low. In midstream subsectors, long-term correlations are particularly low, relative to upstream producers.

We believe there are two reasons why the fundamentals of midstream MLPs remain strong:

  1. Midstream MLP managers’ revenues function like a toll road, and they collect fees as they move, store or process energy. The volume of traffic, not the price of what’s being transported, determines the amount of toll revenue they generate.
  2. There is strong demand for more efficient infrastructure with over $95 billion in growth spending announced to date.

Investing for the long term, OFI SteelPath MLP mutual funds are well-positioned to take advantage of current conditions while seeking to limit risk.

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