Crude tanker shipping stocks have been trending upwards from the start of February, which has led to an 18.2% YTD gain in the Drewry crude tanker index. The index comprehensively outperformed the three key US market indices – while Dow Jones Industrial Average (DJIA) and S&P 500 gained 6.6% and 4.1% respectively over the same period, Nasdaq Composite (0.7%) remained stable as the gains in the first half of February were offset by the steady decline in the latter half of the month with the index remaining range-bound, thereafter. All constituent stocks of the Drewry crude tanker index registered double-digit gains since the beginning of the year irrespective of their fleet composition and chartering mix. Teekay Tankers (TNK) surged 30.8% followed by Tsakos Energy Navigation (TNP) with a gain of 24.5% and Frontline (FRO) with a gain of 22.7%. DHT Holdings (DHT) improved by 16.6% while Nordic American Tankers (NAT) increased by 14.6% and Euronav (EURN) registered a gain of 12.9%.
What is driving tanker stocks?
Recent reports indicate that global COVID-19 infections rose for the fourth week in a row, led by rising cases in the Americas and Europe. The five countries that are reporting the highest number of new cases are Brazil, the US, India, France and Italy with North America and Europe accounting for nearly 83% of all active cases. Several European countries are extending or reintroducing lockdown measures as a third wave of the pandemic sweeps across the continent. Mobility restrictions of varying degrees are in force across the US to contain the surge in new COVID-19 infections. These restrictions are putting pressure on the recovery in oil consumption and thus demand for tankers.
Time charter rates are on the decline across vessel classes with 1-year TC rate for a five-year-old VLCC sliding by 2.8% since December 2020 whereas the rate for a five-year-old Suezmax and a similar Aframax declined by 5.9% and 9.4% respectively in the past three months. Second-hand asset prices have largely remained stable since the beginning of the year. VLCC spot TCE rates on the Middle East-China (TD3C) route plunged from USD 17,850pd on 31 December 2020 to USD 1,370pd on 25 March 2021. Meanwhile, spot TCE rates for a Suezmax vessel on West Africa-Cont (TD20) jumped to USD 15,500pd on 25 March 2021 from USD 3,300pd on 31 December 2020 and Aframax vessel earnings on Baltic-Cont (TD17) soared from USD 2,975pd to USD 20,475pd over the same period. However, the improvement in spot TCE of Suezmax and Aframax vessels is due to the recent surge in their earnings primarily on account of the temporary tightening in tonnage availability on key loading ports rather than fundamental changes in tanker market dynamics. These rates are expected to decline in the coming months. So, what drove the recent rally in crude tanker stocks?…
