Will US-China Trade Dispute Hit Enterprise's (EPD) Fortunes?

Nilanjan Banerjee

Jim Teague, CEO, Enterprise Products Partners LP EPD, stated that virtually, no Chinese company is willing to ink a long-term deal with the oil exporters in the United States.

Although China has not levied any tariff on U.S. oil, the escalated trade tensions between Washington and Beijing are deterring the Chinese energy players to purchase oil for a long haul from the United States. For almost a year now, the two big economies are being involved in a trade war with recently, the United States more than doubled its tariff on $200 billion worth of Chinese products to 25% from the earlier 10%.

Investors should know that Beijing imported 377,000 barrel per day (Bbl/D) of crude from Washington to become the largest importer of U.S. crude through the first half of 2018, according to Reuters. However, per the U.S. Energy Information Administration, the export volumes reduced to 41,600 Bbl/D for the six-month ended February.

Now a million-dollar question that may come to investors’ mind is that — will the drastic contraction in crude volumes, imported by China from the United States affect the American midstream infrastructure giant Enterprise Products?

The oil volumes exported by the United States balloons post the Obama administration’s lifting of a 40-year ban in 2015 on crude exports by America. With the presence of Enterprise Products’ pipeline network — spreading over 49,200 miles — across most of the major American shale plays, the partnership has been capitalizing on the upsurge in demand for midstream assets to support the growing oil export volumes from the United States.

Good news is that the dwindling oil volumes imported by China from the United States is not likely to dent the partnership’s fortunes. This is because America is not dependent on China alone to sell its oil. Rather the nation has increased its crude oil shipments to other countries over the months. Through March 2019 from October 2018, the United States made a shipment of 470.2 million barrels of oil to 38 nations, per Bloomberg. This marked a sharp increase from 359.3 million crude barrels, shipped by America to 31 countries from last April through September, Bloomberg added.

America’s ramped-up shipments of its crude to other nations reflect strong demand for domestically produced oil volumes. Thus, Enterprise Products is likely to continue capitalizing on demand for midstream infrastructures that will be connecting the producers of crude to the key markets.

Enterprise Products Partners L.P. Price

Enterprise Products Partners L.P. Price

Enterprise Products Partners L.P. price | Enterprise Products Partners L.P. Quote

Headquartered in Houston, TX, Enterprise Products currently carries a Zacks Rank #2 (Buy). Other prospective top-ranked players in the energy space include Apache Corporation APA, Ecopetrol S.A. EC and Anadarko Petroleum Corporation APC, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.       

Apache’s average positive surprise in the last four quarters is 6.6%.

Ecopetrol is likely to witness earnings growth of 25.3% through 2019.

Anadarko Petroleum delivered average beat of 6.6% in the last four quarters.

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