Oil tanker rates finally stabilize, helping stocks like Frontline

Market Realist

Betting on a Chinese stock rebound? Crude tankers might be better (Part 8 of 13)

(Continued from Part 7)

The Baltic Dirty Tanker Index

To assess the revenue and earnings potential of the crude oil shipping industry, analysts and money managers often follow the Baltic Dirty Tanker Index. How the Baltic Dirty Tanker Index performs, especially its year-over-year growth, is one factor that has significant implications for Tsakos Energy Navigation Ltd. (TNP), Frontline Ltd. (FRO), Teekay Tankers Ltd. (TNK), Nordic American Tanker Ltd. (NAT), and the Guggenheim Shipping ETF (SEA).

Baltic Dirty Tanker Index

A recent sharp rise

Since shooting from just 600 to 1,200, the Baltic Dirty Tanker Index came back down to ~680 on March 13, 2014. This volatility reflects tighter fleet utilization, and it’s a sign that the crude tanker industry may be in for a turnaround after facing the worst period over the last five years.

While seasonality played a major role, frigid cold weather also negatively affected operations and supply, which caused rates to rise higher. Demand fundamentals were also supportive, as China imported more crude oil from West Africa and South America for diversification purposes, which increased voyage travel distance. Plus, global oil consumption was also stronger on the back of improved global economic growth.

Higher than last year

While rates have come down sharply as seasonality has ended, the latest data shows the Baltic Dirty Tanker Index might have stabilized around 680. On March 24, 2014, the index stood at 712—higher than for most of 2013. Year-over-year growth also stopped falling just above 0% and could remain positive throughout the year, which would be positive for the industry. The index uses year-over-year growth to somewhat account for seasonality.

If the Baltic Dirty Tanker Index can hold at current levels and rise higher, crude tankers should follow suit over the next few weeks or months.

Will the index really rise? Well, there’s a good chance, based on indicators we’ll discuss in the next part of this series.

Continue to Part 9

Browse this series on Market Realist:

View Comments (0)