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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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Supertanker Stocks Ride The Waves Of Volatile Oil Market

  • Freight rates for U.S.-loading supertankers soared as Asian refiners turned to the U.S. market, but recent production cuts by OPEC+ nations have shaken the market.
  • Saudi Arabia and Russia's extended production cuts have impacted the demand for large capacity tankers, leading to a downturn in shipping stocks.
  • Analysts and experts remain optimistic about the long-term prospects for tankers, forecasting significant growth and a potential "rate eruption" by 2024.
Oil Tanker

The global ocean shipping sector is one of the most volatile in the oil and gas business. Back in June, we reported that commodity shipping stocks had gone on a tear after freight rates for U.S.-loading supertankers had skyrocketed as Asian refiners turned to the U.S. market amid production cuts by OPEC+ nations. 

Average spot rates for older very large crude carriers (VLCCs) climbed to $83,300 per day while rates for newer and more fuel-efficient VLCCs hit $91,000 per day. VLCCs are super-massive tankers that carry 2 million barrels of oil.

Well, things have taken a 180-degree turn, and shipping stocks are currently getting hammered after Saudi Arabia extended its voluntary 1-million-barrel-per-day (b/d) production cut through year-end, while Russia extended its own 500,000-b/d voluntary production cut in August with a 300,000-b/d reduction from September through December. 

The Saudi cuts are seen as particularly damaging to demand for VLCCs, as well as ships that carry Russian exports mainly Suezmaxes (1 million-barrel capacity) and Aframaxes (750,000-barrel capacity). According to Kpler data, Russia’s seaborne crude exports clocked in at 3.12 million b/d in August, down 18% from the recent high in May while seaborne products exports averaged 1.58 million b/d last month, 22% lower than the March high. Falling ton-miles (volume multiplied by distance) as well as lower tanker rates has been depressing overall shipping revenues, with most companies in the space expected to post a weak fourth quarter.

Consequently, leading commodity shipping stocks have been reversing earlier gains: over the past 30 days, Tsakos Energy Navigation (NYSE: TNP) shares have declined 9.7%; Teekay Tankers (NYSE: TNK)-12.2%; Nordic American Tankers (NYSE: NAT)-11.9%, Frontline (NYSE: FRO)-4.0%, Euronav NV (NYSE: EURN)-11.3% and International Seaways (NYSE: INSW)-6.7%.

Long-Term Bullish

But the tanker bulls have refused to give up, and insist there’s plenty of light at the end of what they consider a short tunnel.

“While Q4 crude-tanker earnings will likely be softer than expected, the outlook for 2024 has become much more exciting,” wrote Jefferies analyst Omar Nokta in a client note on Wednesday. Nokta says he’s “increasingly confident that 2024 will be a banner year for tankers,” with the market poised for a “rate eruption”.

According to Clarksons Securities analyst Frode Mørkedal, “When OPEC+ eventually resumes production, which is projected to happen in earnest by Q2 2024, the tanker market should experience an immediate uplift.” 

Interestingly, it’s not just Wall Street punters that are buying the bullish narrative but ship owners themselves, with some reportedly pulling their older tankers from second-hand markets in anticipation of another boom time. The experts are also predicting stronger growth in the coming year:

‘‘We forecast that the crude tanker market will see cargo volume growth of between 2.0% and 3.0% in 2023 and between 3.5% and 4.5% in 2024. As average sailing distances are increasing, we estimate tonne miles growth of between 5.0% and 6.0% in 2023, and between 5.5% and 6.5% in 2024,’’ BIMCO’s chief shipping analyst, Niels Rasmussen, has written saying that record oil demand amplifies market strength.

To be fair, it’s not hard to see why optimism remains high with oil demand still robust.

China worries aside, physical markets continue to show signs of strength, with Asian refineries expected to continue ramping up imports while crude inventories at the Cushing, Oklahoma, hub are expected to drop to their lowest level since April. 

Supplies have become increasingly tight since late June as Saudi Arabia and Russia cut production. Indeed, the latest energy report by the International Energy Agency (IEA) revealed that global oil demand grew by 3.26 million barrels per day  in Q2, reaching an all-time high of 103 mb/d. The IEA estimates that the call on OPEC and inventories will be 30 mb/d in Q3 and 29.8 mb/d, which implies inventory draws of over 2mb/d in both quarters at current OPEC output levels; the IEA assessed OPEC output at 27.86 mb/d in July. The call on OPEC is a measure of the “excess demand” that OPEC countries face, and equals the global oil demand minus both the crude oil production by non-OPEC countries and the production by OPEC countries which are not subject to quota agreements.

Commodity analysts at Standard Chartered have buttressed that view saying their projections also imply large inventory draws peaking at 2.9 mb/d in August. However, their timing for when demand will hit a new high is a couple of months later than the IEA’s. StanChart estimates that June demand was about 0.5 mb/d below August 2019’s all-time high, but expects the record will be exceeded in the current month. According to the analysts, highly effective producer output restraint, led by Saudi Arabia, will create the conditions for a price rally that will take Brent prices above this year high at $89.09/bbl onto their Q4-average forecast at $93/bbl, with a likely intra-quarter high above $100/bbl.


Last month, the Energy Information Administration (EIA) forecast total U.S. output will hit 12.61M bbl/day in the current year, eclipsing the previous record of 12.32M bbl/day set in 2019's and easily beating last year's 11.89M bbl/day.  U.S. crude oil output is up 9% Y/Y, which under normal circumstances would blunt OPEC’s efforts to keep supplies low in a bid to goose prices. There is little doubt the U.S. Shale Patch is largely responsible for keeping oil markets well supplied and oil prices low: Rystad Energy  has estimated that whereas OPEC and its allies have announced cuts amounting to ~6% of 2022's production, non-OPEC supply has made up for two-thirds of those cuts, with the U.S. accounting for half of that. Thankfully, U.S.output is unlikely to go high enough to put significant pressure on international prices.

StanChart says the sharp tightening shown in most H2 balances is starting to spill-over into physical markets, and oil prices appear to be well supported to overcome the negative news coming from China.

By Alex Kimani for Oilprice.com

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