The Zacks Oil and Gas – Refining & Marketing MLP industry faces notable headwinds. Inflation and economic slowdowns are weighing on fuel demand and compressing margins. Lower commodity prices and uncertainty around tariffs, especially on steel, could further strain midstream earnings. Analyst sentiment reflects this, with industry earnings estimates for 2025 and 2026 trending lower. Still, not all is bleak. Despite a lowly industry rank, some names are bucking the trend. Midstream firms with fee-based models and diversified infrastructure are showing resilience. The industry has gained nearly 25% in the past year, outperforming both the S&P 500 and the broader energy sector. Valuation also appears reasonable, with the industry trading well below the S&P 500 average. Within this space, Targa Resources TRGP, Sunoco LP SUN and Global Partners LP GLP stand out with solid fundamentals, strong networks and income stability. These stocks offer investors a defensible position in a shaky macro environment.
Industry Overview
Master limited partnerships (or MLPs) differ from regular stocks since interests in them are referred to as units, and unitholders (not shareholders) are partners in the business. Importantly, these low-risk hybrid entities bring together the tax benefits of a limited partnership with the liquidity of publicly traded securities that earn a stable income. The assets owned by these partnerships are typically oil and natural gas pipelines and storage/infrastructure facilities. The Zacks Oil and Gas – Refining & Marketing MLP industry is a sub-sector of this business model. These firms operate refined product terminals, storage facilities and transportation services. They are involved in selling refined petroleum products (including heating oil, gasoline, residual oil, jet fuel, etc.) and a plethora of non-energy materials (like asphalt, road salt, clay and gypsum).
3 Trends Defining Oil and Gas – Refining & Marketing MLP Industry’s Future
Economic Slowdowns and Inflation Risks: Despite operational efficiencies, refining and marketing MLPs remain sensitive to macroeconomic pressures, such as inflation and potential recession. Persistent inflation and weaker demand could impact volumes and profit margins of these entities. A slowdown in global economic activity could reduce fuel consumption, tightening margins across midstream assets.
Midstream Models Offer Resilience Amid Volatility: Midstream operators are proving the strength of integrated, fee-based business models in today’s unpredictable energy landscape. Even amid global price fluctuations and winter-related volume disruptions, they have been posting stable earnings. Majority of their revenues is fee-based, providing consistent cash flows even during weaker commodity pricing. As more producers prioritize high-return drilling in proven basins like the Permian, midstream operators with robust infrastructure and diversified logistics networks stand to benefit from stable growth, strong capital returns, and improved pricing power over time.
Lower Commodity Prices and Tariffs Could Pressure Margins: Despite the structural advantages of midstream models, the sector isn’t immune to macroeconomic pressures. Falling crude price curves and ongoing global trade uncertainties, including steel tariffs, pose headwinds. Meanwhile, any prolonged weakness in commodity prices could impact customer drilling programs, slowing volume growth and potentially impacting long-term forecasts. With rising capex needs and global volatility in the mix, margin pressures could emerge across the industry if conditions worsen.
