Explaining Recent MLP/Midstream Weakness & The Outlook

by Stacey Morris of VettaFi, 10/15/25

Summary

  • Energy infrastructure has come under pressure with some company-specific challenges and macro concerns around US production trends as oil weakens.
  • Despite recent volatility, we believe the key pillars of the midstream investment case are intact, including distribution growth, free cash flow generation, and long-term tailwinds from natural gas demand growth.
  • Dividend announcements could provide a potential catalyst over the coming weeks, but choppiness could continue near term around oil volatility.

Last week’s headlines around China tariffs and corresponding weakness in oil prices brought back memories of April and May when oil and energy stocks sold off sharply on the heels of tariff news. The weakness in energy infrastructure has been particularly acute.

Every name in the Alerian Midstream Energy Select Index (AMEI) is down month-to-date through October 10. The Alerian MLP Infrastructure Index (AMZI) is now slightly negative on a total-return basis for the year, while AMEI is up 2.3% through Friday. AMEI and AMZI fell 5.4% and 4.2% last week, underperforming the 3.3% loss in WTI crude, which fell below $59 per barrel. As of October 10, AMZI is yielding 8.2%, which is in-line with its ten-year average, and AMEI is yielding 5.6%.

This note briefly discusses some of the drivers for recent performance weakness, as well as the pockets of midstream that have been more resilient (namely Canadian corporations or natural gas infrastructure names). It also discusses the outlook from here. While we see the main pillars of the midstream investment case remaining intact, including free cash flow generation, distribution growth, and natural gas tailwinds, oil weakness could create an overhang as the market waits for more color on producer plans into 2026.

Why have MLPs/midstream been so weak lately?

There are several factors that have contributed to MLP/midstream weakness lately. Some headwinds are broad in nature, and other issues are more company specific.

Broad headwinds:

  • The market has been cautious on oil prices for months. This is leading to concerns around production volumes from the US into 2026, including the Permian, which has historically been the US growth engine. This in turn drives some concern around midstream volumes, with Hess Midstream’s (HESM) September guidance update reinforcing the potential impact for midstream (see below). Gathering and processing names tend to be more sensitive to production trends and therefore commodity prices, as they operate closest to the wellhead. The US Energy Information Administration currently expects US oil production to be down slightly in 2026, and natural gas production to grow modestly.
  • Analysts are generally expecting muted 3Q earnings results, and estimates for large MLPs have mostly moved lower. This year has seen very few “beat and raise” quarters. Lighter-than-expected volumes could weigh on quarterly results. Some companies are already expecting to come in at the low-end of full-year financial guidance.
  • On a related note, natural gas prices in West Texas (Waha hub) turned negative in mid-September and worsened in October. Weakness in natural gas prices can act as another deterrent to production growth and may drive temporary production shut-ins. While pipeline maintenance likely contributed (example), meaningful Permian gas takeaway additions will not be online until 2H26 (read more).