Analysts expect oil supply growth of 1.5%, helping tanker stocks

Market Realist

Betting on a Chinese stock rebound? Crude tankers might be better (Part 11 of 13)

(Continued from Part 10)

Oil consumption

While oil consumption doesn’t directly affect crude trade and tanker rates, it nonetheless often reflects positive economic fundamentals and tends to support crude tanker demand. So it’s still a relevant factor to look out for. And as one of the largest importers and consumers of oil, the United States still plays an important role in the tanker market.

Improving 2013

Since peaking at 21,000 thousand barrels a day pre-financial crisis, oil consumption in the United States has stuck between 18,000 thousand barrels and 19,500 barrels a day. A weak labor market, improvements in fuel economy, high oil prices, an aging population, and cheaper alternative energy sources such as natural gas negatively contributed to oil demand. But as people drove more on improved economic sentiment, and industrial activity rose, 2013 turned out to be a good year.

Growth Rate US Product Shipped

Could 2014 come in higher than the EIA’s estimates?

Although the EIA (Energy Information Agency) doesn’t expect oil consumption growth to be positive for the United States in 2014, as further improvements in fuel efficiency reduce oil demand, year-over-year data has so far been positive. On March 14, 2014, the amount of oil product supplied, an indicator of implied demand, grew 1.56% year-over-year, based on the last four weeks of data. While year-over-year has fallen over the past few weeks, as long as it remains positive over the year, crude tanker stocks such as Teekay Tankers Ltd. (TNK), Nordic American Tanker Ltd. (NAT), Frontline Ltd. (FRO), Tsakos Energy Navigation (TNP), and the Guggenheim Shipping ETF (SEA) should benefit.

Note also that industrial activity was negatively affected because of this year’s brutal winter. Several managers of companies in the S&P 500 had attributed their performance to the poor weather. Although a cold winter may mean greater car use, these cold temperatures mean most people wanted to stay indoors as much as they could. So without the winter effect, oil products supplied might have been higher. On an international level, the EIA currently expects 1.5% growth in 2014, up from 1.4% in 2013.

Continue to Part 12

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