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Why Scorpio Tankers Stock Popped 10% Today

Rich Smith, The Motley Fool

What happened

Shares of up-and-coming refined petroleum products transporter Scorpio Tankers (NYSE: STNG) jumped in Thursday trading, closing the day up 10.3% after analysts at B. Riley FBR announced they were adding the stock to their "Alpha Generator List."

FBR already had a buy rating on the stock so couldn't really upgrade it any more than it already had. In adding it to FBR's internal list of stocks expected to generate "alpha" (above-average profits), though, the analyst basically did the next best thing.

Red oil tanker at sea.

Image source: Getty Images.

So what

Why give any more kudos to Scorpio at all? According to SeekingAlpha, the reason is that the macroeconomic environment for oil shippers is improving, with demand on the rise (with rising oil prices) but a "declining pace of new shipbuilding" to supply this demand.

Now what

Economics 101 teaches us that rising demand against a backdrop of flat supply is likely to result in rising prices -- prices that should benefit Scorpio Tankers as an incumbent operator of oil tanker vessels.

FBR is predicting this will result in rising profit margins and free cash flow for Scorpio -- which would be a good thing for shareholders, given that Scorpio has spent the last three years straight losing money.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.