By Katie Dale • Oct 20, 2014.
From September 1, 2014, until October 14, 2014, crude tanker companies—like Tsakos Energy Navigation Ltd. (TNP), Frontline Ltd. (FRO), Teekay Tankers Ltd. (TNK), and Nordic American Tanker Ltd. (NAT)—recorded declines of 34.5%, 32.7%, 23%, and 19.7%, respectively.
For the same period, the Guggenheim Shipping ETF (SEA) fell by 21.3%. It tracks a basket of major shipping companies worldwide. It underperformed the S&P 500’s 6.1% decline.
Important indicators
In this series, we’ll analyze the crude tanker industry’s fundamentals. We’ll also analyze why the companies recorded significant declines in the past month. We’ll take a look at some of the key indicators. The key indicators will help us understand why the decline occurred. These crude tanker companies transport crude oil.
U.S. imports are an important indicator. U.S. imports have been changing the entire industry’s dynamics. They’ve become a crude oil net exporter. Earlier, they were a net importer.
We’ll also analyze how U.S. domestic production is increasing. Horizontal drilling and hydraulic fracturing, or fracking, are unlocking shale formation supplies. We’ll also look at why Canadian crude exports touched historic highs.
To gauge industry players’ sentiment and the expected industry outlook, we’ll look at newbuild and secondhand vessel prices for VLCC, Suezmax, and Aframax vessels. We’ll also look at ship ordering activities.
Before we discuss important industry indicators, we’ll look at the Baltic Dirty Tanker Index. It reflects the overall rate of transporting crude in tankers.
Visit the Market Realist Marine Shipping page to learn more.
FRO $1.65 0.00 0.00%
NAT $7.79 $0.03 0.32%
SEA $19.91 $0.37 1.89%
TNK $3.81 $0.13 3.40%
TNP $6.30 -$0.04 -0.55%
There are no shortcuts to investing.
But if I knew how to manage my portfolio safer and smarter than most hedge fund managers, I could realistically grow my wealth.
I Agree
PART 2
Must-know: Crude tanker indicators in September (Part 2 of 9)
Why the Baltic Dirty Tanker Index is going south
By Katie Dale • Oct 20, 2014 12:29 pm EDT
Baltic Dirty Tanker Index
Analysts and money managers follow the Baltic Dirty Tanker Index to assess the crude oil shipping industry’s revenue and earnings potential. How the Baltic Dirty Tanker Index performs, especially its year-over-year (or YoY) growth, is one factor that has significant implications for companies like Tsakos Energy Navigation Ltd. (TNP), Frontline Ltd. (FRO), Teekay Tankers Ltd. (TNK), Nordic American Tanker Ltd. (NAT), and the Guggenheim Shipping ETF (SEA).
Enlarge Graph
September decline
The Baltic Dirty Tanker Index recorded a marginal rise to 678 on October 10, 2014. It was 639 at the beginning of the month. In September, the Index recorded a decrease of 70 basis points—from 693 to 623 at the beginning of the month. However, the downtrend reversed. The Index recorded gains since the beginning of October. The crude tanker market began to pick up again.
Crude tanker owners and industry analysts are estimating a bounce-back in the market. This is based on higher refinery runs that are predicted for the fourth quarter. An average increase of 1.5 million barrels per day (or bpd) is expected.
Outlook
With VLCC, Suezmax, and Aframax earnings recovering and the crude tanker market improving, industry stocks and the SEA could be impacted positively. Also, on a YoY basis, the Index is up by 15.5%—compared to October 2013.
Click here to learn more about the Baltic Dirty Tanker Index.
FRO $1.65 0.00 0.00%
NAT $7.79 $0.03 0.32%
SEA $19.91 $0.37 1.89%
TNK $3.81 $0.13 3.40%
TNP $6.30 -$0.04 -0.55%
PART 3
Must-know: Crude tanker indicators in September (Part 3 of 9)
Why Newbuild prices are consistent despite seasonality
By Katie Dale • Oct 20, 2014 12:30 pm EDT
Vessel prices
In September, Newbuild very large crude carriers (or VLCCs) and Suezmax prices remained at the August 2014 levels—$97 and $65 million, respectively—according to data from R.S. Platou. R.S. Platou is a leading international ship and offshore broking company. Newbuild VLCCs are the largest common ship that’s used to transport crude oil over long distances.
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Newbuild Aframax prices remained at the previous month’s levels of $54 million.
Impact on markets and companies
Unlike shipping rates in the spot market, newbuild prices are less volatile. They aren’t subject to seasonality. While newbuild prices and shipping rates have diverged at times, they’ve mainly followed each other in the past. Also, it takes about two or three years to build a tanker. Each tanker costs ~$60 million or more. As a result, managers usually focus on the longer-term prospects.
Newbuild prices affect the Guggenheim Shipping ETF (SEA). They also affect tanker companies like Teekay Tankers Ltd. (TNK), Tsakos Energy Navigation Ltd. (TNP), Frontline Ltd. (FRO), and Nordic American Tanker Ltd. (NAT). In addition to ship orders, they reflect company managers’ expectations about the industry’s future outlook and profitability.
Click here to learn more about newbuild prices.
FRO $1.65 0.00 0.00%
NAT $7.79 $0.03 0.32%
SEA $19.91 $0.37 1.89%
TNK $3.81 $0.13 3.40%
TNP $6.30 -$0.04 -0.55%
PART 4
Must-know: Crude tanker indicators in September (Part 4 of 9)
Why the VLCC 5-year and 10-year prices are consistent
By Katie Dale • Oct 20, 2014 12:30 pm EDT
Secondhand vessel values
Five-year VLCC prices were consistent at $75 million—from the previous month. Ten-year VLCC prices were unchanged at $48 million. They increased by 41.2% year-over-year (or YoY).
Enlarge Graph
R.S. Platou commented that September was a quiet month for the crude tanker industry. Most of the businesses failed to materialize. only four deals were concluded in September. Looking ahead, R.S. Platou expects increased activity in the next month—given the large number of deals with pending subjects.
Newbuilds versus secondhand vessel prices
For newbuilds, buyers and sellers have to wait almost two years for the vessel to be delivered. However, secondhand vessels can be delivered and employed earlier. As a result, secondhand vessels reflect the shipping industry’s short to medium-term expectations.
Buyers and sellers are more medium-term thinkers. They’re usually more responsive to industry turnarounds—compared to newbuilds.
Vessel price appreciation
Also, analysts use secondhand vessel prices to value tanker shipping companies in the stock market. The higher the assets’ value, the higher the value of a company’s assets.
As long as the prices continue to increase, tanker stocks—like Teekay Tankers Ltd. (TNK), Tsakos Energy Navigation Ltd. (TNP), Nordic American Tanker Ltd. (NAT), and Frontline Ltd. (FRO)—should continue to benefit from higher rates and valuations. They will benefit, unless already priced in. However, if vessel values decrease, the stocks and the Guggenheim Shipping ETF (SEA) could be negatively affected.
FRO $1.65 0.00 0.00%
NAT $7.79 $0.03 0.32%
SEA $19.91 $0.37 1.89%
TNK $3.81 $0.13 3.40%
TNP $6.30 -$0.04 -0.55%
There are no shortcuts to investing.
But if I knew how to manage my portfolio safer and smarter than most hedge fund managers, I could realistically grow my wealth.
I Agree
PART 5
Must-know: Crude tanker indicators in September (Part 5 of 9)
Why the crude tankers’ orderbook is declining
By Katie Dale • Oct 20, 2014 12:32 pm EDT
Why is the orderbook important?
Managers use the oil tanker orderbook as a yardstick to assess the industry’s future fundamental outlook. It includes the number of ships that have been ordered. It also includes the number of ships under construction.
Enlarge Graph
Orderbook is increasing
The crude tankers’ orderbook decreased to 64.5 million deadweight tonnage (or DWT)—736 vessels—in September from 65.9 million DWT—753 vessels—in August.
A falling orderbook could mean that oil tanker companies don’t have a positive expectation for future supply and demand dynamics. It could also mean that there are better investment alternatives—like secondhand vessels. However, it could indicate that companies are waiting on purchases. They want to keep supply growth in check, so that it doesn’t hurt the industry recovery.
Impact on companies
The declining orderbook suggests that managers have a cautious outlook for the industry. As a result, they’re reducing orders. It can also mean that new vessels ordered earlier are now being delivered. This could cause a dip in new orders.
Buying a new tanker is a large investment. It can cost $100 million or more. It usually takes two or three years for a tanker to be delivered. As a result, managers and investors are usually more careful when they place orders.
The decline in the orderbook in September could suggest caution among shipping managers under the Guggenheim Shipping ETF (SEA). It could also suggest caution under tanker stocks like Teekay Tankers Ltd. (TNK), Tsakos Energy Navigation Ltd. (TNP), Nordic American Tanker Ltd. (NAT), and Frontline Ltd. (FRO). As a result, investors should follow other indicators to get the overall picture.
FRO $1.65 0.00 0.00%
NAT $7.79 $0.03 0.32%
SEA $19.91 $0.37 1.89%
TNK $3.81 $0.13 3.40%
TNP $6.30 -$0.04 -0.55%
PART 6
Must-know: Crude tanker indicators in September (Part 6 of 9)
Why US crude imports dip and domestic production increases
By Katie Dale • Oct 20, 2014 12:33 pm EDT
U.S. energy scenario
Historically, the U.S. has been the largest oil importer. However, U.S. production is surging due to a combination of horizontal drilling and hydraulic fracturing, or fracking. The combination unlocks supplies from shale formations. Now, the U.S. is close to being a energy-independent country.
Enlarge Graph
The Energy International Association (or EIA) expects the U.S. to become the largest crude oil producer within the next few years. It will race ahead of countries like Russia and Saudi Arabia.
Narrowing oil imports
The EIA data revealed that for the week ending October 3, 2014, U.S. crude oil imports averaged 7.7 million barrels per day (or bpd). This was an increase of 428,000 bpd from the previous week. For the last four-week average as of October 3, 2014, crude oil imports into the U.S. averaged 7.5 million bpd. This was 6% less than same period in 2013. This suggests the higher use of domestically produced oil compared to the imported oil.
Rising domestic production
For the week ending October 5, the U.S. recorded an average of 8.88 million bpd. This was the highest since March 1986. It was an increase of 285,000 bpd from the first week of September. The domestic production touched its 28-year high and refineries shut down units for maintenance. However, on October 7, 2014, the U.S. government commented that oil demand is expected to slip to its lowest level since 2012.
Outlook
Looking ahead to 2015, the EIA forecasted that the U.S. will consume 18.92 million bpd of oil. This is down from 18.96 million in 2013. Also, the EIA estimates output to increase to 9.5 million bpd next year. This will be the highest since 1970.
In the last month, the agency also reduced its global demand projections for this year and next year. The International Monetary Fund cut its 2015 world economic growth forecast.
Crude tanker stocks—like Frontline Ltd. (FRO), Teekay Tankers Ltd. (TNK), Nordic American Tanker Ltd. (NAT), and Tsakos Energy Navigation Ltd. (TNP) and the Guggenheim Shipping ETF (SEA)—will likely be impacted with a drop in oil imports.
FRO $1.65 0.00 0.00%
NAT $7.79 $0.03 0.32%
SEA $19.91 $0.37 1.89%
TNK $3.81 $0.13 3.40%
TNP $6.30 -$0.04 -0.55%
PART 7
Must-know: Crude tanker indicators in September (Part 7 of 9)
Must-know: Why products supplied are increasing
By Katie Dale • Oct 20, 2014 12:33 pm EDT
Products supplied
Products supplied indicate petroleum product consumption. It measures these products’ disappearance from its primary sources—refineries, natural gas-processing plants, blending plants, pipelines, and bulk terminals. Finished motor gasoline, kerosene-type jet fuel, distillate fuel oil, residual fuel oil, propane or propylene, and other oils are included in the calculation of total products supplied.
Enlarge Graph
Weekly products supplied rising
For the week ending October 3, 2014, total products supplied were 19 million barrels per day (or bpd)—compared to 18.6 million bpd in the first week of September. Except propane or propylene, the other products supplied recorded an increase on a year-over-over (or YoY) basis. Meanwhile, on a week-over-week basis, total products supplied dipped marginally to 19 million bpd from 19.4 million bpd. Kerosene-type jet fuel, residual fuel oil, and other oils recorded an increase.
Over the last four weeks, an average of 19.2 million bpd of product oil were supplied. This was up by 1.1% from the same period last year.
Effect on crude tankers
Looking ahead to 2015, the U.S. Energy Information Administration (or EIA) forecasted that the U.S. will consume 18.92 million bpd of oil. This is down from 18.96 million in 2013. Also, the EIA estimates that output will climb to 9.5 million bpd next year—the highest since 1970.
As a result of weakening demand, the agency curbed its forecasts for Organization on Petroleum Exporting Countries (or OPEC) oil and other liquid fuels production to 35.51 million bpd in 2015. This was down 350,000 bpd from last month’s forecast.
In the last month, the agency also reduced its global demand projections for this year and next year. The International Monetary Fund cut its 2015 world economic growth forecast.
The latest data available shows that oil demand in 2014 will be higher than what it was in 2013. However, if the EIA’s estimate is correct and oil demand is lower than in 2013, crude tanker companies—like Frontline Ltd. (FRO), Teekay Tankers Ltd. (TNK), Nordic American Tanker Ltd. (NAT), and Tsakos Energy Navigation Ltd. (TNP) and the Guggenheim Shipping ETF (SEA)—could be negatively affected.
FRO $1.65 0.00 0.00%
NAT $7.79 $0.03 0.32%
SEA $19.91 $0.37 1.89%
TNK $3.81 $0.13 3.40%
TNP $6.30 -$0.04 -0.55%
There are no shortcuts to investing.
But if I knew how to manage my portfolio safer and smarter than most hedge fund managers, I could realistically grow my wealth.
I Agree
PART 8
Must-know: Crude tanker indicators in September (Part 8 of 9)
Why Canadian exports to the US record historic highs
By Katie Dale • Oct 20, 2014 12:34 pm EDT
Canadian exports to the U.S.
According to Statistics Canada, shipments of energy products—including bitumen from Alberta’s oil sands, the world’s third-largest oil reserve—are the largest component of Canada’s exports.
Canada’s largest pipeline company, Enbridge Inc, is also undertaking a multi-billion dollar expansion program across all the parts of its export network. It wants to boost capacity in order to deal with frequent oil congestion. The congestion is because the oil sands’ supply exceeds pipeline capacity.
Enlarge Graph
Canada’s weekly exports rising
For the week ending October 3, 2014, Canadian crude oil exports to the U.S. stood at 3.25 million barrels per day (or bpd). According to data from the U.S. Energy Information Administration (or EIA), this exceeded the three billion mark for the first time ever. These levels were up 18% from the previous week. It was a 35% increase from the same period last year. As of October 3, the four-week average levels stood at 2.98 million bpd.
Brighter outlook
Canada is home to the Alberta oil sands. It has the world’s third largest crude reserves—after Saudi Arabia and Venezuela. According to the Canadian Association of Petroleum producers, oil production is expected to reach 3.91 million bpd next year. It’s expected to surge to 6.44 million bpd by 2030. The rise in exports is mainly due to an increase in shipments by rail from western Canada with companies re-opening or increasing their rail ports terminal to full capacity.
Enbridge’s new 600,000 bpd Flanagan south pipeline—from Illinois to Cushing, Okhlahoma—is expected to start shipping crude in December. Crude exports are expected to increase in the upcoming months.
Increased exports will support the performance of crude tanker companies like Frontline Ltd. (FRO), Teekay Tankers Ltd. (TNK), Nordic American Tanker Ltd. (NAT), Tsakos Energy Navigation Ltd. (TNP), and the Guggenheim Shipping ETF (SEA). Shipping companies will likely benefit as exports increase.
Click here to learn more about crude oil inventories.
FRO $1.65 0.00 0.00%
NAT $7.79 $0.03 0.32%
SEA $19.91 $0.37 1.89%
TNK $3.81 $0.13 3.40%
TNP $6.30 -$0.04 -0.55%
PART 9