Must-know crude oil tanker outlook: Some good news and bad news (Part 1 of 10)
The importance of the Baltic Dirty Tanker Index
The shipping industry’s profitability is largely subject to shipping rates. To assess the revenue and earnings potential of the crude oil shipping industry, analysts and money managers often follow the Baltic Dirty Tanker Index, which is the benchmark for oil tanker shipping rates. 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). Usually, the higher the index, the more positive it is for oil tankers.
Positive year-over-year growth despite slight drop
Over the past two months, the Baltic Dirty Tanker Index has been moving around 700 without major deviations. Despite the impressive surge in January, the index has now stabilized again. In April 2014, the Baltic Dirty Tanker Index dropped slightly. On April 28, 2014, the index stood at 655 points—the lowest since the beginning of this year. However, the year-over-year growth remains positive, at 7.46%, while it had mostly been negative over the last two years. As long as the year-over-year growth remains positive, it can still benefit oil tanker shippers when the absolute value is relatively weak.
What is driving the Baltic Dirty Tanker Index?
The Baltic Dirty Tanker Index is driven by many factors, including major countries’ crude oil imports, oil production, and refinery activity. Plus, seasonality also plays a big part. Ultimately, shipping rates, like most commodities prices, are determined by the interaction of global demand and supply fundamentals.
We’ll examine the indicators that might affect the Baltic Dirty Tanker Index in detail in this series.
Browse this series on Market Realist:
- Part 2 - Why US implied oil demand has regained most of 2013′s growth
- Part 3 - Why are US seaborne oil imports improving but still not robust?
- Part 4 - Why oil tankers could benefit as US refiners finish maintenance
- Commodity Markets
- crude oil tanker