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Why a tranquil oil tanker space creates investor opportunity

Part 3
Why a tranquil oil tanker space creates investor opportunity (Part 3 of 8)

The fall in US oil imports was distorted by last year’s numbers

Falling U.S. oil imports

As the world’s largest consumer and importer of crude oil, falling U.S. imports have negatively affected demand for crude tankers over the last few years. Two years ago, the United States imported ~4,750 thousand barrels of oil from its top eight ocean suppliers, primarily from OPEC (the Organization of Petroleum Exporting Countries). Today, the U.S. imports ~3,250 thousand barrels of oil a day from its top eight ocean suppliers, while its domestic production grew ~2,000 thousand barrels over the same period.

US Weekly Imports and ProductionEnlarge Graph

March 28, 2014

Preliminary estimates of oil imports and productions are published by the EIA (Energy Information Administration), normally every Wednesday for the prior week’s data. On April 2, 2014, the EIA announced that the United States imported 6,851 thousand barrels of crude oil a day for the week ending March 28, 2014. The top ten major suppliers imported 6,457 thousand barrels, while the top eight countries for ocean suppliers, which exclude Russia, Canada, and Mexico, equated to 3,269 thousand barrels.

Since tankers are used to transport oil across water, seaborne suppliers are more relevant for the Guggenheim Shipping ETF (SEA) and tanker stocks such as Teekay Tankers Ltd. (TNK), Tsakos Energy Navigation Ltd. (TNP), Nordic American Tanker Ltd. (NAT), and Frontline Ltd. (FRO).

Crude Weekly Imports Yearly GrowthEnlarge Graph

Distortions

On a year-over-year basis, which is more relevant because it’s a quick way to account for seasonality, imports from the top eight seaborne suppliers fell 14.01%—worse than the prior week’s negative of 5.57%. But a look at last year’s data shows that crude oil imports spiked in March 2013, recovering after weak imports from December 2012 to February 2013. Naturally, yearly growth in crude imports positively benefit from December 2013 to February 2014. Year-over-year growth should improve over the next few weeks. Note that the four-week average was used to smooth out fluctuations.

We’ve also created a subset of the top seaborne suppliers, comprised of Kuwait, Colombia, Venezuela, Saudi Arabia, Iraq, and Brazil. These are nations that produce and export substantial amounts of low-grade (heavier and sourer) crude, as opposed to the higher-grade (light sweet) crude produced in the United States. Investors should consider that the subset doesn’t only export low-grade crude, but the latest positive data might also suggest the United States is only significantly importing heavier grades from these countries. This is an important topic for the next article in this series.

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