Oneok upgraded, Williams downgraded as Wells Fargo adjusts midstream ratings

Oneok (NYSE:OKE) on Friday was upgraded to an Overweight investment rating from Equal Weight and Williams (NYSE:WMB) was downgraded to Equal Weight from Overweight by analysts at Wells Fargo Securities.

The rating changes were part of the bank’s adjustments of its 2023 outlook for master limited partnerships ((MLPs)) in oil and natural gas processing, storage and distribution – known as the midstream part of the energy industry.

“We’re positive on midstream heading in 2023 as we believe the sector’s solid underlying fundamentals, reasonable valuations and improved free cash flow should support outperformance on a relative basis,” Michael Blum, analyst at Wells Fargo, said in a Dec. 16 report. “We expect continued capital discipline from midstream resulting in robust FCF and higher cash returns to shareholders.”

The bank’s forecast assumes a mild global recession as the Federal Reserve raises interest rates to tackle inflation will dampen demand for energy, but supply-chain bottlenecks and limits on oil output will provide a floor for crude prices.

Demand for natural gas liquids will rebound as China re-opens from its strict pandemic lockdowns. U.S. producers of liquid natural gas will continue to see strong demand from China and Europe, according to the report.