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As the world’s largest importer of crude oil, making up more than 21% of world’s total import volume in 2010, the United States’ imports have a significant effect on global oil trade. If the United States imports less crude oil, due to an economic downturn for example, it can have large impact on shipping rates, since supply is inelastic (a small change in demand can have a greater effect on prices). This will eventually lead to companies reporting lower margins and earnings since most of their costs are fixed.
U.S. crude oil import hits a record low
For the week ending June 8th, U.S. imported a record low volume of crude oil: 7.32 million barrels a day, according to American Petroleum Institution. The largest energy boom in the United States, driven by technologies called hydraulic fracturing and horizontal drilling, is creating thousands of jobs and attracting millions of dollars in investment funds from oil companies around the world. This has kept oil prices low, aside from weak developed economies over the past five years, which is benefiting domestic manufacturers and consumers.
Tanker stocks suffer
But tanker firms are hurt. As production grew from ~5 million to 7.35 million barrels a day, according to the latest data available from the U.S. Department of Energy (DOE), U.S. oil refiners have begun to rely less on imported oil from the Middle East. Throughout the last five years, oil imports have fallen from an average of 10 million barrels a day to ~7.9 million a day now.
This has put pressure on tanker shipping rates, which has fallen ~50% since January 1, 2008. But tanker companies, such as Teekay Tankers Ltd. (TNK), Nordic Nordic American Tanker Ltd. (NAT) and Tsakos Energy Navigation Ltd. (TNP), have fallen 80% over the past five years as their earnings fell more due to several fixed costs that they were not able to cut back on. Ship Finance International Ltd. (SFL) has performed better since it rents out its service/ships based on long-term contracts. The Guggenheim Shipping ETF (SEA) was also adversely affected by this trend.
Follow to see if US oil import will continue to fall: U.S. Drilling Activity
To see other key drivers that affect the marine shipping industry, such as ship capacity (fleet utilization), visit our driver page, Marine Shipping. For other industries currently available, see our Home Page.
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