8 charts on US oil crucial to investing in crude tankers

Part 5

Why recent US manufacturing sentiment is positive for oil tankers

U.S. manufacturing and crude tankers

Manufacturing activity in the United States is important to crude tankers because the United States is the world’s largest crude oil importer and industrial activity makes up close to 30% of U.S. oil consumption. So, when manufacturing activity in the United States is rising, it’s positive for oil imports and crude tankers—ceteris paribus (all things being equal). But when manufacturing activity is slowing, it can negatively affect tanker demand.ISM Manufacturing Index 2013-12-24Enlarge Graph

ISM Manufacturing Index

The ISM Manufacturing Index is one measure that reflects manufacturing activity in the United States. It’s based on a sample size of 300 supply management professionals. The survey is used to assess activity in employment, production, inventories, new orders, and supplier deliveries, which are then compiled to create a composite index. The 50 figure is often known as the “magic number.” When the index is above the 50 mark, the sector is often considered to be expanding. When the index is below 50, it may suggest contraction. The farther away the index is from 50, the stronger the expansion or contraction.

Encouraging figures

November’s data came in at 57.3, which is higher than the 56.4 in October. Manufacturing activity has been improving this year on continuous quantitative easing by the central bank as well as a more stable or improved economy worldwide. Recent trends mimic stronger reported third quarter GDP (economy) growth. However, caution is needed because recent hard data like durable goods orders, industrial production, and factory payrolls have suggested some slowdown, according to Reuters.

Drawn thoughts and conclusions

If manufacturing activity continues to grow, it may drive further employment, auto purchases, and car use. A strong ISM manufacturing index may support oil use for industrial and transportation activity. This is one indicator supportive of crude tankers like Frontline Ltd. (FRO), Tsakos Energy Navigation Ltd. (TNP), Teekay Tankers Ltd. (TNK), and Nordic American Tanker Ltd. (NAT). The Guggenheim Shipping ETF (SEA) may also benefit from higher U.S. manufacturing activity.

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