US total oil trade favors product over crude tankers

US Oil Production and Trade 2013-03-10Enlarge GraphAlthough U.S. oil import data is one of the metrics that investors can use to analyze the effects of domestic oil production on demand for tankers that transport oil across water, it is also important to analyze its effect on the total U.S. oil trade. While shipments of oil into United States may fall, shipments outside of the United States may increase. Thus, investors should use export and import data to review the true effect of an increase in the U.S.’s reliance on domestic production.

Domestic production lowering crude oil import

U.S. crude oil production has gradually grown from about five million barrels per day in 2008 to seven million barrels by the end of 2012, spurred by techniques called hydraulic fracturing and horizontal drilling. As domestic production increased, crude oil imports fell below the late 2009 low, posting a figure of 7.58 million barrels per day by the end of 2012 (see “Growing US domestic production is a risk for crude tankers“). The IEA (International Energy Agency) forecasts a decline in intercontinental crude trading until 2017.1

US Crude Oil and Product Export 2013-04-28Enlarge Graph

U.S. product oil export is rising

However, a rise in U.S. product oil export has partially offset the decline in crude oil import, with total U.S. oil trade yet to hit any new lows since 2009.2 Because crude oil is usually transported using large tankers and refined oil is carried through smaller ones, companies with large crude ships will likely see lower demand or demand growth in the long term. On the other hand, companies with smaller ships, or those focused on product tankers, should benefit.

Product tankers expect more favorable demand ahead

This will negatively affect Frontline Ltd. (FRO) and Nordic American Tanker Ltd. (NAT) that focus on large crude tankers. Teekay Tankers Ltd. (TNK), which engages in product tankers, will benefit from this emerging and ongoing trend. The Guggenheim Shipping ETF (SEA), which invests in large global shipping companies and generally performs similar to the Dow Jones Shipping Index, will be negatively affected since large crude ships occupy more than 50% of the total number of ships in the market.

  1. Meyer, Gregory and Javier Blas. “Oil trade in throes of historic shift.” FT.com. http://www.ft.com/intl/cms/s/0/cb917324-17ce-11e2-8cbe-00144feabdc0.html#axzz2NXYdO8vB (accessed March 14, 2013).
  2. Product oil is a refined version of crude oil.