Betting on a Chinese stock rebound? Crude tankers might be better (Part 7 of 13)
China is key
As one of the fastest-growing economies, China’s oil imports will continue to have an important influence on 2014′s tanker utilization and rates, and consequently on stocks like Frontline Ltd. (FRO), Teekay Tankers Ltd. (TNK), Nordic American Tanker Ltd. (NAT), and Tsakos Energy Navigation Ltd. (TNP) as well as the Guggenheim Shipping ETF (SEA).
Although China’s still behind the United States in crude import volume, its imports have been increasing by ~300 thousand barrels of oil a day every year since 2010. In January this year, China imported a record amount of crude oil, which also helped push the Baltic Dirty Tanker Index (a benchmark index tanker shipping rates) to multi-year highs. This amount moderated in February, as imports fell to 6..03 million barrels a day, but the year-over-year growth remains quite strong and above the historical trend-line.
Crude imports should improve
China’s crude imports were relatively weak at the start of 2013 compared to the same period a year before. This was largely due to strategic stockpiling activities that went into motion in 2012—perhaps because of unrest in the Middle East and a short period of low prices. So while the government injected fiscal stimulus in late 2012 to ensure a smooth political transition and prevent economic growth from falling further, oil imports didn’t grow as much. The story changed towards the second half of 2013, when the impact of 2012′s strategic reserve waned, and some attributed this to another round of commercial and strategic stockpiling.
2014′s growth is higher
China’s oil imports are expected to show accelerated growth of ~7.1% in 2014, as domestic production growth of 2.2% isn’t expected to be enough to support new refineries that will come online, according to CNPC (China National Petroleum Corporation) research. That’s much better than the 4.08% we saw in 2013, which (according to CNPC) was negatively affected by zero capacity addition to China’s SPR (strategic petroleum reserve)—inventory built to help shield the country from supply disruptions. Total SPR remained at 141 million barrels in 2013—although, according to the IEA (International Energy Agency), the government’s targeting 272 million barrels in total by 2015.
Browse this series on Market Realist:
- Part 1 - Betting on a Chinese stock rebound? Crude tankers might be better
- Part 2 - Why China’s initial March PMI could be bad for oil tankers
- Part 3 - China’s relatively stable post-2013 loan growth helps oil tankers
- Commodity Markets
- Sectors & Industries
- Frontline Ltd.
- crude oil