Market Overview

Analyst: Regional Dynamics Support The Bullish Case For USD Partners


USD Partners LP (NYSE: USDP), a master limited partnership that acquires, develops and operates energy-related logistics assets, stands to benefit from the expansion in crude pricing differentials between Western Canadian Sour crude and WTI. according to B. Riley.

The Analyst

B. Riley FBR's Robert Balsamo upgraded USD Partner from Neutral to Buy with a price target lifted from $11 to $14.

The Thesis

USD Partners' Hardisty Terminal in Western Canada is one of the most important crude oil hubs in Canada for delivery to refineries in the Midwest and Gulf Coast, Balsamo said in a note. As it stands now, Canadian crude oil is selling at a "significant" discount to WTI due to a lack of a takeaway capacity.

The price disparity between Canadian crude and WTI will likely remain through at least 2023 which naturally incentivize shippers to enter long-term contracts with USD Partners' Hardisty Terminal, the analyst wrote. In fact, many of USD Partners' contracts with shippers will expire in 2019 and 2020 but new market dynamics, including ongoing delays in new pipeline construction, supports demand for the terminal beyond the next two years.

The analyst's stance of ongoing contract extensions with multiple shippers is inline with the company's confirmation on June 4 in which it secured a new customer for a five-year commitment at the Hardisty Terminal.

Price Action

Shares of USD Partners were trading higher by 1 percent Monday afternoon.

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