Orderbook shows divergence between product and crude tankers


Dec. 4 2020, Updated 10:52 a.m. ET

The significance of the orderbook

The tanker orderbook represents managers’ assessment of the industry’s future fundamental outlook. It reflects the number or capacity of ships that have been ordered, as well as the number of ships under construction. When ship orderbook increases, it’s a sign that future supply and demand dynamics are favorable and that companies can generate good returns. On the other hand, when ship orderbook falls, it reflects a negative picture for the tanker industry.

Divergence between product and crude tankers remains

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On August 23, orderbook for product tankers and crude tankers had stood at 12.32% and 9.98% of existing capacity measured in dwt (deadweight tonnage), respectively. Since the beginning of this year, orderbook for product tankers has turned around, after years of a falling trend. This reflects managers’ positive sentiments regarding the future profitability of tankers used to transport refined oil like gasoline and kerosine.

The orderbook for crude tankers, on the other hand, has continued to slump. These tankers are used to transport crude oil (unrefined oil) from primarily Africa and the Middle East to the rest of the world. The continuous slump shows that managers expect existing supply growth to be higher than demand growth in the near future.

A percentage is often used to reflect the changes in the number of ships over time. An orderbook based on the number of ships has little meaning without putting it in context. If 12 ships were on orderbook, the interpretation could differ when existing capacity consists of 30 versus 1,000 ships. An orderbook also helps investors understand how much of existing capacity is currently in backlog and that if all of it were to be constructed, what percent of growth investors could expect.

As orderbook rises, so do share prices

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The divergence we’ve seen between orders for product tankers and crude tankers reflects in share prices as well. Tsakos Energy Navigation Ltd. (TNP), Scorpio Tankers Ltd. (STNG), and Navios Maritime Acquisition Corp. (NNA), for example, have outperformed, as their fleets have significant exposure to product tankers. On the other hand, Frontline Ltd. (FRO), Nordic American Tankers Ltd. (NAT), and Teekay Tankers Ltd. (TNK) have underperformed.

The Guggenheim Shipping ETF (SEA) has climbed higher this year because it’s diversified into other international shipping companies like shuttle tankers, LNG (liquified natural gas) vessels, container ships, and some dry bulk ships that have performed well. While current orderbook continues to show a negative trend for crude tankers, investors should keep track of it because sooner or later, orders will resume, as growth in Chinese crude oil imports is expected to outpace declines in the United States.


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