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Must-know: Why crude tanker stocks have underperformed this year

Xun Yao Chen

Key crude tanker trends (October 25–30) (Part 9 of 9)

(Continued from Part 8)

Shipping and the US market

A constant stream of money printing by the Fed and higher earnings have pushed the S&P 500 and major indexes into new highs this year. The Guggenheim Shipping ETF (SEA), which invests in major shipping companies like Maersk, has also performed well, outperforming the S&P 500.

 

Crude tanker stocks are underperforming

Yet crude tanker stocks have underperformed the Guggenheim Shipping ETF (SEA) and the SPDR S&P 500 ETF (SPY) over the past 12 months. The performance of crude tankers shown above comprises Frontline Ltd. (FRO), Nordic American Tanker Ltd. (NAT), Tsakos Energy Navigation Ltd. (TNP), and Teekay Tankers Ltd. (TNK).

Despite the market putting in one of the best performance in years, the underperformance of crude tanker stocks reflects poor industry fundamentals. While the global economy appears to be picking up momentum and countries like Europe and China are doing better than last year, they haven’t helped.

Indicators covered this week

As we saw in this week’s series, scrappage activity remains elevated and shipping rates remain depressed. While capacity growth is coming down, shipping rates haven’t turned up. The latest increase in product oil export growth will likely paint a negative outlook for the crude tanker business over the short to medium term.

Prior series

In last week’s series, we saw a continuous climb in crude imports from China. Of course, they were negatively affected by inventory restocking activity that took place in 2012. So on a year-over-year basis, crude oil imports didn’t rise as much. Car sales remain solid, however, and as more cars are on the road, China’s oil demand will continue to rise. Despite these increases, they weren’t enough and are likely not enough to offset declines in US imports for now, however. In the future, that will likely change.

Outlook for crude tankers

Higher orderbooks for VLCCs are one reason to be optimistic about the future. But for now, the average crude tanker stock will likely underperform the overall market and the Guggenheim Shipping ETF (SEA) over the short to medium term.

For more information on crude tankers, follow the previous series, Key tanker stock drivers: Why you should follow tanker trends (Part 1).

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