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One More Seasonally Strong Month Ahead for Crude Tankers

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Updated

Baltic Dirty Tanker Index

The BDTI (Baltic Dirty Tanker Index) for the first 14 days of December stood above the 900 mark before it tumbled down to 873 on December 23. The last-21-day BDTI average was recorded at 916.

The BDTI tracks shipping rates for the transportation of crude oil on representative routes. Researchers and analysts follow this index to assess companies’ revenues and potential earnings.

As seasonality is a known factor in tanker rates, it is also important to see the index on a year-over-year basis. On December 23, the BDTI was 1.3% higher than in the same period last year.

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Tanker rates

According to shipping company MJLF’s spot market scorecard, the VLCC (very large crude carrier) rate for the benchmark route Gulf to Japan rose to $69,900 per day on December 18, 2015, from its 21-day average of $53,800 per day. In December, tanker rates generally rise due to increased demand. Also, foggy winter weather hampers smooth sailing and transit delays occur. This tightens the tanker supply, which in turn causes tanker rates to rise. On the other hand, Suezmax and Aframax rates were down from their 21-day average.

Forward expectations

The BDTI, which has fallen in the second half of December, is expected to rebound in January. As tankers enter January, tanker demand will increase, which will push the tanker rates upwards. The seasonal factors will support the demand in January as well. Tanker companies such as Frontline (FRO), Teekay Tankers (TNK), Tsakos Energy Navigation (TNP), Nordic American Tankers (NAT), DHT Holdings (DHT), and Euronav (EURN) will benefit from these seasonal factors.

Investors who are interested in broad exposure to industrial stocks can invest in the SPDR Dow Jones Industrial Average ETF (DIA).

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