8 charts on US oil crucial to investing in crude tankers

Part 6
8 charts on US oil crucial to investing in crude tankers (Part 6 of 9)

Americans drove the most in 5 years, helping crude tanker stocks

The link between vehicle miles traveled and crude tankers

Transportation makes up a large part of U.S. oil consumption. In our overview and cheat sheet guide to investing in crude tankers, we saw that transportation makes up around three quarters of U.S. consumption. Naturally, if there are more cars on the road or people are driving more, then oil consumption should go up, holding everything else constant.

Miles Vehicle Traveled 2013-12-24Enlarge Graph

2013: A big year

The number of miles that vehicles have traveled year-to-date has increased significantly from 2012. According to the Department of Transportation, vehicle miles traveled totaled 249.27 billion miles year-to-date. This is much higher than 2012′s 246 billion miles and 2011′s 245 billion miles overall.

Increased economic activity

These increases have largely been caused by increased job prospects and improving economic activity in the United States. As more people found jobs, they’ve moved out of old homes and to new locations. Americo, owner of the popular moving equipment and storage company U-Haul, has seen its share price rise 85% this year. Of this share appreciation, 58% was driven by multiple expansion (higher valuation), but the rest was driven by increased business activity. The central bank’s pledge to continue with quantitative easing (often viewed as money printing by the economy) certainly supported the U.S. stock market this year with a 27% increase in value.

Long-term structural changes

Will the recent trend continue? Most experts believe that as the U.S. economy recovers, driving will increase. But they also acknowledge that there are structural changes that would prevent returns to 2006 and 2007 numbers. These include an urbanization trend, rather than the suburbanization trend we’ve seen throughout much of 1950 to 2000, as well as a change in customer perceptions of owning a car. While the car was largely seen as a must-have for certain age groups of males, that’s no longer the case. An increase in online shopping also reduces the need to drive. Some of this decline in vehicle miles traveled will be replaced by an increase by transit vehicle use, but they’re more efficient than the average people driving in the United States.

Key notes and thoughts

2013 has been a good year for oil consumption. Long-term structural changes could limit gains from an increase in economic activity. But that might be enough to support oil demand and crude tankers like Frontline Ltd. (FRO), Nordic American Tanker Ltd. (NAT), Tsakos Energy Navigation Ltd. (TNP), and Teekay Tankers Ltd. (TNK). This would also affect the Guggenheim Shipping ETF (SEA).

The Realist Discussions