Shipping rates: A leading indicator
The single most important indicator that affects tanker companies’ performance is shipping rates. One well-established index that tracks the price of shipping refined oil across the ocean for representative routes is the Baltic Dirty Clean Index. Compiled daily by the Baltic Exchange for rates settled in the spot market on a time charter equivalent basis, it’s widely considered a leading indicator due to its timeliness. It often has a significant impact on the share prices of tanker stocks.
Rates remain low overall
On October 1, the Baltic Clean Tanker Index stood at 586, up from the recent low of 580 seen on September 19. The increase brings hope that the recent decline in rates (which we can most likely attribute to weak product shipment demand because weekly capacity growth has been negative) may be only temporary. Yet caution is needed.
Year-over-year growth dips
The recent dip into negative year-over-year territory is somewhat negative, as other indicators haven’t been quite optimistic either. The Baltic Clean Tanker Index recovered, on a year-over-year basis, from the negative values during the first half of 2012, when US domestic production wasn’t growing much. It started to recover during the second half of 2012, as oil production rose and product oil exports increased. Analysts often use year-over-year data to adjust for seasonality and make comparisons to demand growth.
Companies increasing vessel portfolio are benefiting most
As US oil production is expected to pick up momentum throughout the remainder of the year, according to estimates from the EIA (Energy Information Administration), there’s reason to be optimistic. Yet caution is required because rates could remain pressured if new ship deliveries result in lower fleet utilization or excess capacity.
The current data isn’t enough to suggest the start of a full-blown downtrend. But investors may want to be cautious because in the short term, Scorpio Tankers Ltd. (STNG), Navios Maritime Acquisition Corp. (NNA), Tsakos Energy Navigation Ltd. (TNP), and Capital Product Partners LP (CPLP) could face headwinds. To a lesser extent, performance in the product industry could also negatively affect the Guggenheim Shipping ETF (SEA), which invests in TNP and CPLP.
- Part 1 - Why weak September orders led to weak product tanker performance
- Part 2 - Product tanker scrappage dropped for the 1st time since August
- Part 3 - Why the product tanker capacity fall could be negative for stocks
- Part 4 - Weak representative product tanker rates negatively affect stocks
- Part 5 - Why the flat oil rig count won’t hinder product tanker demand
- Part 6 - New-build prices for some product tankers rise, good for stocks
- Part 7 - Why 2nd-hand vessel prices favor Navios (NNA) and Scorpio (STNG)
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