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Crude Tanker Stocks and ETFs: The Current Outlook

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Part 2
Crude Tanker Stocks and ETFs: The Current Outlook PART 2 OF 8

Why Crude Tanker Rates Fell in the Third Quarter of 2017

3Q17 tanker rates

Crude tanker rates have fallen significantly in the third quarter of 2017. Average VLCC (very large crude carrier) rates fell 25% to $15,422 per day on September 22 from $20,613 per day on June 2. At the end of August, VLCC rates fell as low as $8,747 per day. Euronav (EURN) and DHT Holdings (DHT) mainly operate VLCCs.

Why Crude Tanker Rates Fell in the Third Quarter of 2017

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Similarly, Suezmax rates have also fallen. On September 22, average Suezmax rates were $6,995 per day—48% lower than the $13,554 per day we saw on June 2. Teekay Tankers (TNK) and Tsakos Energy Navigation (TNP) have Suezmax vessels in their fleets. Nordic American Tankers (NAT) only operates Suezmax vessels.

Why rates fell

The third quarter is generally weak in any given year. However, this year, the third quarter was one of the worst quarters in the last few years. One of the main reasons is a high fleet growth rate. The tanker supply rose while the demand side took a hit. An OPEC oil production cut lowered overall oil supply, which proves negative for the tanker industry. Also, Saudi Arabia’s oil exports have fallen due to a production cut agreement, which is negative for VLCCs.

Is a recovery on the horizon?

The next few months could be equally tough for the crude tanker industry. For the next six to 12 months, we expect to see weak tanker rates. However, moving forward into the second half of 2018, we expect the industry to recover. The OPEC oil production cut is expected to last only up to March 2018, when production should revert to original levels. Oil demand is also expected to rise. On the tanker supply side, the crude tanker supply is expected to fall. Scrapping is expected to rise after having been very low for the past two to three years.

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