Last month, we reported that commodity shipping stocks were exploding amid a global commodity supercycle. Leading commodity shipping stocks Tsakos Energy Navigation (NYSE: TNP) and Teekay Tankers (NYSE: TNK) recently took out 52-week highs, as did dry bulk carrier owners Genco Shipping & Trading (NYSE: GNK), Golden Ocean (NASDAQ:GOGL), and liquefied natural gas (LNG) carrier owner Flex LNG (NYSE: FLNG).
But fortunes can change at the speed of light in this business.
Monday was a rough day for the U.S. stock market as concerns over China’s economy, oil demand, Fed tightening, and inflation triggered one of the worst trading sessions of the year, with the S&P 500 falling 3.2%. However, ocean shipping stocks fared worse than most, with many leading names tanking in double figures.
Among crude tanker owners, Tsakos Energy Navigation fell 16%; Nordic American Tankers (NYSE: NAT) 15%, Frontline (NYSE: FRO) and Teekay Tankers 13%, Euronav (NYSE: EURN) 12%, International Seaways (NYSE: INSW) 11%, and DHT (NYSE: DHT) 10%.
The majority of ocean shipping stocks and crude tanker stocks are small and micro-cap equities traded by retail investors, which partly explains their wild swings: TNP has a market cap of $368.9M while NAT is valued at $488.0M; FRO, TNK, EURN, INSW, and DHT have valuations of, $1.8B, $555.7M, $2.4B, $1.1B, and $931.5M, respectively.
LNG shipping stocks did not fare any better, despite the Ukraine-Russia war increasing demand for seaborne volumes of liquefied natural gas (LNG): Flex LNG (NYSE: FLNG) lost 11%, while its smaller peer GasLog Partners (NYSE: GLOP) fell 10%. Europe must replace lost pipeline volumes with seaborne imports as it tries to wean itself from Russian pipeline gas.
Oil Bear Market?
One worrying sign for crude tanker investors is that spot rates remain extremely low, particularly for larger vessel sizes.
Clarksons Platou Securities assessed Monday’s spot rate for modern very large crude carriers (VLCCs; tankers that carry 2 million barrels of crude) at just $8,500 per day—less than a third of Clarksons’ estimated breakeven rate for a five-year-old VLCC of $33,000 per day.
Crude tanker stocks saw gains earlier this year despite rate weakness, mainly driven by optimism about a future recovery. Unfortunately, after Monday’s slide, most crude tanker names have given up much (and in some cases all) of their YTD gains.
In contrast, ocean shipping stocks are still outperforming broader equity indexes and domestic transport stocks in the year-to-date.
Another worrying trend: the oil price rally has hit the skids.
In the current year, energy investors have been largely spared from the broader equity market selloff, with the sector emerging as the best performer amongst the 11 U.S. market sectors.
But it now appears that the bears are finally coming for the oil patch.
The broad index of energy stocks Energy Select Sector SPDR ETF (XLE) fell by 8.3% on Monday, on pace for its worst trading day of the year and weakest performance since falling 9.4% on June 11th, 2020.
US natural gas prices led the energy commodity complex lower, with Henry Hub down 9% on the day and ~18% from highs reached late last week.
Marathon Oil (NYSE:MRO) led the losers among E&P names, -10%, while other notable decliners include APA Corp. (NASDAQ:APA) -8.6%, EOG Resources (NYSE:EOG) -8.4%, Coterra Energy (NYSE:CTRA) -8.1%, Devon Energy (NYSE:DVN) -8%, Occidental Petroleum (NYSE:OXY) -7.5%, Pioneer Natural Resources (NYSE:PXD) -6.9%, Exxon Mobil (NYSE:XOM) -5.8%, Chevron (NYSE:CVX) -5%, Shell (NYSE:SHEL) -4.4%.
Oilfield services stocks were some of the worst performers: Nabors Industries (NYSE:NBR) -12%, Liberty Energy (NYSE:LBRT) -10.5%, Patterson-UTI (NASDAQ:PTEN) -10.1%, Transocean (NYSE:RIG) -8.8%, Golar LNG (NASDAQ:GLNG) -8.3%, Schlumberger (NYSE:SLB) -7.4%, Halliburton (NYSE:HAL) -6.9%.
Small-cap energy names were hit hardest, with Laredo (NYSE:LPI) down 13%, and Kosmos (NYSE:KOS) down 16% in early trading, despite the latter posting solid results ahead of the market open.
By Alex Kimani for Oilprice.com
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