What happened
Enterprise Products Partners (EPD 0.48%) stock lost steam on Monday and was trading down 4.4% as of 1 p.m. ET.
Enterprise Products wasn't the only oil and gas stock to crash today, but here's the thing: It shouldn't have crashed at all.
So what
Oil prices plunged Monday morning, with prices of both West Texas Intermediate crude and Brent crude trading more than 5% lower, as of this writing. Oil prices hit two-week lows today and are now significantly below their multi-year March highs.
Image source: Getty Images.
So far, the war between Russia and Ukraine had hugely helped lift oil and gas prices as it disrupted supply. But with large oil importer China now putting more cities and provinces under lockdown as coronavirus cases surge -- it put parts of Beijing under lockdown this past weekend -- oil experts foresee a fall in demand for oil, and that hit prices hard today.
As expected, oil stocks crashed today, but so did Enterprise Products even though it's a midstream company that's not susceptible to the fluctuations in oil and gas prices as it processes, stores, and transports natural gas, natural gas liquids, crude oil, and other products under fixed-price, long-term contracts. The price of natural gas, in fact, was up nearly 1% as of this writing.
Perhaps this is what investors fear: Oil prices hugely influence the capital spending decisions of oil producers. Any fall in the demand and prices of oil will hurt drilling activity, and that could mean fewer new orders and projects for Enterprise Products.
Now what
Enterprise Products will also report its first-quarter numbers on May 2, and the market could already be anticipating decelerating growth in a falling oil price environment. With the stock also surging in recent weeks, the market perhaps sees limited upside.
What the market seems to be ignoring, though, is the fact that Enterprise Products' income and cash flows don't ebb and flow with oil and gas prices. Also, gas prices rose significantly after the fourth quarter, and Enterprise Products also acquired Navitas Midstream in February. Both of these factors should have contributed substantially to the company's distributable cash flows in Q1 -- something investors should be able to see next week.
Long story short, if you're thinking of dumping Enterprise Products shares in panic like the rest of the market today, you might want to rethink as this energy company is among the few that's built to withstand turbulent times.
