Crude Oil, 1.100-Foot Steel Monsters Rule
Comment of the Day

December 30 2015

Commentary by David Fuller

Crude Oil, 1.100-Foot Steel Monsters Rule

Here is the opening of this interesting article from Bloomberg:

The most destructive oil crash in a generation is giving ship owners a billion-dollar windfall.

With the Organization of Petroleum Exporting Countries abandoning output limits in a drive for market share, ships that carry as much as 2 million barrels a trip are in demand to haul crude from the Middle East to Asia and North America. While oil prices fell about 35 percent in 2015, average earnings for these carriers jumped to $67,366 a day, the most since at least 2009, according to Clarkson Plc, the world’s largest shipbroker.

“The stars are aligned for us right now,” Nikolas Tsakos, the chief executive officer of Tsakos Energy Navigation Ltd., said in an interview at Bloomberg’s New York offices, adding that falling oil prices will likely stimulate demand and cargoes next year.

Tanker analysts are predicting the rate boom will persist for many of the same reasons oil forecasters are bearish. OPEC shows no sign of reversing its market strategy, and Iran has outlined plans to ramp up its exports once economic sanctions against the country are lifted. At the same time, the U.S. just repealed a four-decades old limit on its exports.

With on-land inventories already at record levels, this could mean more barrels will eventually be stored on ships, further increasing profit, said Tsakos.

The biggest tanker operators who manage fleets from Europe are Euronav NV, based in Antwerp, Belgium, DHT Holdings Inc., Frontline Management AS, which runs Norway-born billionaire John Fredriksen’s tanker fleet, and Tsakos Energy in Greece. All have seen their shares rise this year while most energy producers have fallen.

David Fuller's view

Clearly cheaper energy costs open the routes of international commerce, while also making business more attractive and competitive for many corporations and middleclass people around the world. 

The three shares mentioned above as currently benefitting somewhat: Euronav (EURN BB, est p/e 5.97 & yield 4.47%), DHT Holdings (DHT US, est p/e 7.64 & yield 8.81%) and Tsakos Energy (TNP US, est p/e 4.39 & yield 3.20) are not expensive.  However, they appear to be held back by uncertainty over how long the current surplus of crude oil will last, especially as a coordinated supply reduction by OPEC and other producers is likely to occur at some point in 2016.   

Back to top

You need to be logged in to comment.

New members registration