Why a tranquil oil tanker space creates investor opportunity (Part 5 of 8)
U.S. oil consumption
As the United States is the largest oil consumer, U.S. oil consumption patterns will continue to sway the Guggenheim Shipping ETF (SEA) and tanker companies’ outlooks, including Teekay Tankers Ltd. (TNK), Tsakos Energy Navigation Ltd. (TNP), Nordic American Tanker Ltd. (NAT), and Frontline Ltd. (FRO). A weak labor market, improvements in fuel economy, high oil prices, an aging population, and cheaper alternative energy sources such as natural gas weighed down on demand for oil, imported crude oil—including heavy crude—and tanker demand from 2011 to 2012.
Improvements in demand
But as people drove more on improved economic sentiment, and industrial activity rose, 2013 turned out to be a good year. The EIA (Energy Information Administration) breaks down major oil products into finished motor gasoline, distillate fuel oil, other oil for industrial use, kerosene-type jet fuel, and propane and propylene—by order of magnitude.
Distilate fuel oil includes diesel oil used in autos and trucks on highways, agriculture machinery, and railroad locomotives. It also includes fuel oils that are used for space heating and electric power generation. Propane is used for heating, agriculture, and cooking, while propylene is largely used to make plastics.
Positive yearly growth
The latest weekly data from the Energy Information Administration suggests the United States consumed 18,199 thousand barrels of product oil. For the past four weeks, the United States consumed an average of 18,567 barrels of oil a day, marking a year-over-year of 2.26%. From October to March, oil consumption rose as cold weather and record crops boosted consumption for heating oil and propane. While cold weather added to higher consumption this year, it appears to have been negatively affected during the first two months of this year, as frigid winter kept people indoors, airplanes on hold, and cars covered in snow.
The EIA doesn’t expect motor gasoline consumption to increase further, as improvements in fuel economy limit the upside from higher car usage. However, demand for the remaining products is expected to rise as economic activity picks up. If oil consumption growth can remain positive this year, crude tankers should benefit.
Browse this series on Market Realist:
- Part 1 - Why a tranquil oil tanker space creates investor opportunity
- Part 2 - Why the Baltic Dirty Tanker Index shows investors must be patient
- Part 3 - The fall in US oil imports was distorted by last year’s numbers
- Oil, Gas, & Consumable Fuels
- Commodity Markets
- oil consumption
- oil prices
- Frontline Ltd.