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7 points that reflect tanker fundamentals say recovery isn’t looming (Part 7)

Xun Yao Chen, Industrials Analyst

Continued from Part 6

Flat oil shipment growth

Even though China has become a more significant importer in the world since 2008, it wasn’t enough to support the entire oil shipping industry. Oil trade, based on the three largest entities (the United States, the Eurozone, and China), basically stood flat for the past five years. While China moved forward, the United States retreated by a similar amount. As though sparring, neither forces moved too far to one side.

(Read more: Diana Shipping: the most undervalued dry bulk shipping company)

Supply to outpace demand

Based on import growth of close to zero (see Part 6) and the likelihood that the United States will continue to import less crude oil this year (see Part 5), investors expect oil shipments to fall this year. If tanker companies get lucky, they may see some growth, but the odds are against them. Since current capacity growth was still elevated (see Part 4), supply growth will most likely outpace demand growth this year.

(Read more: Shipping recovery continues with additional purchases, long-term opportunity)

Baltic Dirty Tanker Index 2013-07-17

Depressed tanker rates to continue

This will negatively impact tanker rates, as excess supply keeps competition high. Although rates rose recently, they increased on the back of higher oil prices, driven by tensions in the Middle East. Several companies’ share prices have risen because of higher rates. However, because higher oil prices will also push fuel cost up, the positive effect of higher rates will unlikely increase earnings. Since medium-term share price actions depend on earnings reports, a potential downside looms.

(Read more: Tanker capacity continues to grow faster than demand, negative outlook)

Learn more about indicators that reflect tanker fundamentals

Continue to ship prices, Part 8, or go back to see the list of indicators, Part 1.

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