‘Outsized upside’ could be around the corner for these dividend-paying energy plays, Morgan Stanley says

Investors have been shy about getting into midstream stocks in the thick of the uncertainty in the Middle East, but those who are selective may find good entry points, according to Morgan Stanley. President Donald Trump said earlier this week that the U.S. and Iran have agreed to a memorandum of understanding , which could end the conflict between the two countries. Oil prices have been on the decline since then, with West Texas Intermediate crude futures touching $75.52 per barrel, their lowest level since March 5. "De-escalation of the Iran war and resumption of traffic out of the Strait of Hormuz raise risk of further near-term selling pressure across energy equities," wrote analyst Robert Kad in a June 9 report. "However, global oil and refined product markets have moved to pronounced deficits, full normalization in trade flows will likely not be achieved until late 2026/early 2027 even if transit resumes imminently, and rebuilding of commercial and strategic reserve inventories globally could be a multiyear process," he added. This means that there could be higher mid-cycle crude oil prices, the analyst said. Though a rotation into energy will likely focus on corners of the market with direct sensitivity, it should be directionally positive for midstream and "offer more outsized upside for oil-levered midstream equities," Kad added. …