Addressing Questions On Oil, Geopolitics, And Midstream

For ETF investors, the key question is not just where oil prices go, but which parts of the energy complex actually carry the sensitivity. Midstream funds are often built around fee-based pipeline and storage businesses rather than direct commodity exposure, so headline moves in crude can matter less than many investors assume. That distinction is central when evaluating whether an energy allocation is meant to express a price view or provide cash-flow exposure.

Contract structure is the second lens. Midstream operators may have take-or-pay agreements, minimum volume commitments, and long-dated contracts that can soften the impact of weaker drilling activity. For portfolio construction, that means the link between oil prices and distributable cash flow is indirect. Investors should still watch how concentrated a fund is in pipeline transport, gas infrastructure, or Canadian-heavy exposure, because the balance of those businesses can change the risk profile materially.

Third, the geopolitical backdrop highlights why sector ETFs need to be assessed through diversification and liquidity, not only narrative momentum. Oil shocks can affect producer sentiment faster than they affect contracted infrastructure income, but the reverse is also true when capital spending slows or volumes weaken. A diversified energy sleeve can help separate near-term price volatility from longer-term infrastructure cash flows, while fund expenses, spreads, and tracking efficiency still matter for holding power over a full cycle.

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The first few weeks of the year have already been eventful in terms of geopolitics and related headlines around oil. This note addresses three timely questions on oil prices and the read-through for midstream energy infrastructure.

Why is unrest in Iran boosting oil prices in an otherwise oversupplied market?

US benchmark oil prices closed as high as $62 per barrel (bbl) last week on rising geopolitical risk in Iran. While Iran exports about 2 million barrels per day of crude (MMBpd), mainly to China, tension in the area raises concerns around the Strait of Hormuz – a major shipping channel for crude and liquefied natural gas. Iran’s exports represent about 2% of global supply, while closer to 20% of global oil supply flows through the Strait. Energy observers are generally not expecting a disruption in oil flows from Iran, but the events in recent weeks added back some geopolitical risk premium to oil prices.

More broadly, oil markets remain oversupplied, which has put pressure on prices. While the International Energy Agency (IEA) has pointed to 3.7 MMBpd of oversupply on average from 4Q25 through 2026, most energy analysts believe balances will not be that bad. However, 1H26 is expected to be a relative low point. The Bloomberg median WTI oil forecast is $57/bbl in 1H26, before improving slightly in 2H26 ($58.50/bbl) and into 2027 ($61/bbl). Sentiment around oil could improve this year, which would benefit energy stocks broadly, including midstream.

Does what happened in Venezuela have read-through for North American midstream?

There is not a direct connection between US midstream and Venezuela. However, Canadian midstream names sold off after the news broke, falling 4-8% from January 2-8. Canadian producers saw greater pressure. Presumably, the premise was that more Venezuelan crude would compete with Canadian heavy crude. (When crudes compete, prices tend to fall, which mainly benefits complex US refiners that can run heavy barrels.)

However, many US Midwest refineries are geared to run Canadian crude and would likely struggle to source Venezuelan barrels. The US Midwest Original Postet_move_impcp_a2_r20_epc0_IP0_mbblpd_a.htm" rel="nofollow">imported 2.8 MMBpd of Canadian crude last year, compared to just 0.5 MMBpd on the Gulf Coast. The Gulf Coast may have more supply options, but barrels will continue to flow south from Canada and are largely contracted. South Bow (SOBO, SOBO:CA) mainly moves crude from Canada to the US, and their normalized EBITDA is 90% contracted. SOBO has a weighted average contract life of 8 years. Additionally, Canadian barrels can be re-exported from the Gulf.

The Trump Administration has talked about the US buying 30-50 million barrels of Venezuelan crude. While it seems like a lot of oil, it’s potentially a month of heavy supply or less than a week of total Gulf Coast crude supply. As recently as the early 2000s, the Gulf Coast imported over 1 MMBpd of Venezuelan crude. The oil will show up in increments that limit its overall market impact. Large tankers can carry up to 2 or 3 million barrels of crude.

What would President Trump’s desired oil price of $50/bbl mean for midstream?

According to media reports, President Trump would like to see oil at $50/bbl, albeit prices are determined by the market. Considering WTI closed at $55/bbl in mid-December and the oversupply concerns discussed above, it’s certainly possible that oil falls to that level. If oil lingers at $50/bbl, US oil producers broadly are likely to keep production flat at best or likely let it fall. On Friday, Harold Hamm of private Bakken producer Continental Resource told Bloomberg he was halting drilling, saying margins were basically gone. (Hamm also has ties to the current administration.)

For midstream, $50/bbl is not ideal for volumes, but contract protections and minimum volume commitments should help maintain stable cash flows as was demonstrated under much worse conditions in 2020. Midstream should be able to maintain and likely grow dividends even if oil falls to $50/bbl. Keep in mind, companies are investing heavily in natural gas pipeline projects driven by rising demand, which would be unaffected by oil weakness.

As often said in energy, the cure for low prices is low prices. Typically, that manifests as stronger demand. Another counter to low prices includes OPEC+ production management. The group already suspended the unwind of their production cuts for 1Q. Low prices could also spur the US to more aggressively refill its strategic petroleum reserve (SPR), which has been a talking point for the administration. OPEC+ and refilling the US SPR could help set a floor for prices. However, it bears mentioning again that market analysts are generally more constructive on oil prices into 2027+, so weakness may be transient.

https://seekingalpha.com/article/4861436-addressing-questions-on-oil-geopolitics-midstream