Why the Baltic Dirty Tanker Index is nearing a 5-month high

Market Realist

Crude Tanker Indicators: Positive sentiment (Part 1 of 5)

The Baltic Dirty Tanker Index

Followed by analysts and money managers in order to assess the revenue and earnings potential of the crude oil shipping industry, the Baltic Dirty Tanker Index is an important yardstick for the tanker industry.

How the Baltic Dirty Tanker Index performs—especially its year-over-year growth—is one factor that has significant implications for companies like Tsakos Energy Navigation Ltd. (TNP), Frontline Ltd. (FRO), Teekay Tankers Ltd. (TNK), Nordic American Tanker Ltd. (NAT), and the Guggenheim Shipping ETF (SEA).

 A spike in July

In trading, the Baltic Dirty Tanker Index jumped to 848 on July 29, 2014, from 728 at the beginning of the month. In July’s trading session, the index peaked to 955—its highest level since February 3,2014, when it reached 958.

This uptick in the BIDY trend shows that the crude tanker industry is likely to benefit from improvements in spot market rates and positive growth development, mainly due to tightening supply and demand. It’s a sign of a turnaround after facing the worst period over the last five years.

Asian refineries returning from routine maintenance (higher than normal) booked extra ships. This supports oil tanker rates and thereby pushes index prices. Plus, demand fundamentals were supportive while global oil consumption was also stronger on the back of improved global economic growth.

A rising trend

Up to July 2014, the Baltic Dirty Tanker Index has peaked to 1,344 and reached a low of 630. During its trading sessions, the index fluctuated. Since June, the index has firmed up. It’s now rising in its trend and nearing its five-month high.

With rates estimated to increase, supported by a better industry environment, crude tanker stocks and the Guggenheim Shipping ETF (SEA) have recorded significant gains in its share prices. Also, this suggests that the crude tanker industry’s recovery remains intact and supports most managers’ expectation that this year’s shipping rates will be higher than last year’s.

Year-over-year, the index is up 30%. Positive yearly growth shows that crude tankers and the industry are regaining their support levels.

China’s PMI and auto sales

Let’s now take a look at China’s PMI auto sales data in the next part of this series.

Continue to Part 2

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