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Editorial Dept

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A Timely Play To Capitalize On The Oil Price Drop

This week we take another look at some energy companies that could do well in a low-oil price environment. With WTI sinking to a fresh six-year low, investors should be wary of parking their money upstream at the moment.

As we discussed last week, companies with significant assets downstream are profiting from large margins these days.

Another exciting play is the oil tanker market. Upstream companies are getting their clocks cleaned with low oil prices, but the tanker market actually benefits when crude is selling on the cheap.

Why Oil Tanker Companies are Seeing The Best Market in Years

Teekay Tankers Ltd. (NYSE: TNK) is having a great year. We highlighted Teekay in an Executive Report in February 2015, and since then the stock is up 20 percent.

For the second quarter, Teekay reported earnings of $41.3 million, or $0.35 per share, compared to a loss of $4.1 million a year ago, or a loss of $0.05 per share. The company attributed the turnaround to several market factors working in its favor.

First, is the slow rate of supply expansion in the tanker market. After years of companies building too many new tankers, building has leveled off. Below is a chart from Teekay Tankers showing the slowing build out of new oil tankers. As you can see, up until just last year, the tanker fleet was growing quickly, and the expansion depressed tanker rates, pushing down revenues for all players in the sector. That drag on earnings has finally dissipated.…




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