Oil prices have surged in the wake of the war with Iran. The conflict has caused a major supply disruption as crude-carrying ships can't safely pass through the Strait of Hormuz. As a result, the International Energy Agency has coordinated the release of 400 million barrels of oil and refined products from member nation reserves to help fill the gap, including 172 million barrels from the U.S. Strategic Petroleum Reserve (SPR).
I predict that Energy Transfer (ET -0.44%) will emerge as a surprising winner of the SPR release. Here's why.
Image source: Getty Images.
A trip down memory lane
The U.S. has released oil from the SPR several times since its establishment in 1975 to address supply disruptions caused by natural disasters and wars. The last one occurred in 2022. The U.S. released 180 million barrels from the SPR over six months following Russia's invasion of Ukraine to offset the oil price surge related to the war.
Energy Transfer was a big beneficiary of the 2022 SPR release. The pipeline company operates extensive oil infrastructure along the U.S. Gulf coast, where the U.S. stores oil in four major storage facilities. Energy Transfer noted in 2022 that its Nederland terminal and related facilities served as crucial resources with access to the SPR. As a result, higher SPR volumes at the time fueled record transportation and terminal volumes at its Nederland and Houston terminals in the second and third quarters of 2022.
NYSE: ET
Key Data Points
A plan to release and refill the SPR
The U.S. plans to release 172 million barrels from the SPR, which it expects will take 120 days based on the planned discharge rate. These volumes will likely flow through Energy Transfer's vast oil network, including its Nederland and Houston terminals. As a result, it should see higher earnings over the next couple of quarters as the U.S. releases these volumes.
Additionally, the U.S. plans to rapidly refill the SPR following this release. It has already arranged to replenish its strategic reserves with about 200 million barrels of oil over the next year, or 20% more than it expects to draw down. Energy Transfer is also a likely beneficiary of the rapid replenishment of the SPR, given the critical role its infrastructure plays in supporting this stockpile.
An SPR-fueled boost
Energy Transfer should see strong volume growth in its crude oil segment this year, fueled by higher oil prices and the SPR release and replenishment. That should drive faster earnings growth for the master limited partnership, which sends investors a Schedule K-1 Federal tax form. That uptick in its growth rate could drive up Energy Transfer's unit price, enabling investors to potentially earn high-octane total returns this year.
