Seven Oil Tanker Stocks That May Get Beaten Up by OPEC

OPEC’s call for a reduction in oil output and Russian President Dmitry Medvedev’s eager willingness to cooperate might be bullish for oil prices. Whether OPEC can successfully stave off the decline in oil prices is being debated here. The real concern is for the ultimate loser being the oil transportation tanker ships as the combination of demand destruction and reduced oil output means less oil to export.

Some may say the group has been badly beaten by sellers year-to-date and while this may be true, so has just about everything else in this deleveraged market. On a short-term basis, the Transportation-Shipping Industry index, which comprises oil tankers, dry shipping, and miscellaneous other cargo transporters, is overbought. The group rallied +20.47% between December 4th and 10th and sold off -5.57% Thursday. During this same period, i.e. December 4th-10th, a basket of oil tanker transportation stocks (Arlington Tankers (ATB); General Maritime (GMR); Nordic American Tanker (NAT); Shipping Finance Int’l Ltd. (SFL); Teekay Corp (TK); Teekay Offshore (TOO); and Knightbridge Tankers (VLCCF)) returned an average +15.52% and declined an average -4.86% Thursday.

While Thursday’s weakness may have been taken for granted due to the stock market’s negative performance, these stocks should be monitored, especially during market rallies. How long the oil production cuts will last cannot be determined yet, but this fundamental may not be fully factored in their stock prices and these stocks may be ideal short candidates on strong market rallies.

Disclosures: None

Comments

[Lee 99:]

SFL is a financial entity, not a shipper. They own ships but don't operate them

2008 Dec 12 08:46 AM

[thefuture007:]

Hi
Just a quick note,when you leave out a major component of this sector which is Oil ship Bulkering,Such as what Shell and others are trying to do.
Buy oil at todays ,Possible low prices,..And place into OIL Tanker ships and Sell into market,in next 6 motnhs or so.
That Creates a lack of ships to ship oil or bulker oil vs Demand.
Thoughts on this with a proposed OPEC Cut.?
Thoughts on How many Ships Bulkered vs how many can be used spot,Time charter..?
Those Factors are what will Determine on a more Fundamental..not a Trading perspective of the aforementioned Oil A Shipping stocks.

Like to hear anyone's blog here about that/Those scenarios so We can then Value the oils shippers on a more P/E Valuation of The real Supply/Demand Scenaio.
Happy Trails.

2008 Dec 12 09:40 AM

[NOWHEREMAN:]

SFL leases ships. How many contracts can be cancelled early? Any idea.

2008 Dec 12 10:49 AM

[notsosmart:]

its not only transport ,its storage while waiting for price increase.not very well thought out article.

2008 Dec 12 10:54 AM

[secmaven:]

The dramatic 3 day rise in shipping stocks was obviously driven by short covering. Investors do not breathless chase stocks up like this even in the best of bull markets. In a bear market you can forget investor demand driven price rises.

2008 Dec 12 11:42 AM

[oilsands:]

What is the cost of bunkering? berth rental and crew pay and insurance, plus??? I would like to see some costs related to bunkering. Sounds awfully expensive compared to hedging.

Remember George Bush bought an enormous amount of oil for the "strategic reserve"; that is a real wild card. Six weeks from now he will no longer control that resreve.

SFL has a very tight relationship with Frontline and a large majority of its ship are on long term lease. I own both, plus OCNF and am about to buy more shippers.

2008 Dec 12 12:09 PM

[notsosmart:]

no matter what oil has to move & nobody has figured out a way to pave over the ocean.also ,like or not, fossil fuels will be with us for the foreseeable future.i think the only shipping you have to be wary of is the greek shippers.

2008 Dec 12 01:55 PM

[Crude Oil T...:]

These are good plays if you have a 6-8 month time frame. That takes a lot of nerve in a market like this though. Holding more than a day or two takes nerve in this market. This may not be a short two year bull market which would make buy and hold dead for us old guys.

2008 Dec 12 02:51 PM

[nonidiomatic:]

For some reason, Seeking Alpha has been bashing the shipping stocks lately, even before Thursday's correction. If you can believe the financial statistics, the shippers are the one solid play in this topsy turvy market. Low debt and plenty of cash. What's the problem?

2008 Dec 12 05:03 PM

[Old Trader:]

oilsands,

Berthing, crew pay, insurance, plus....my thought there's probably not much "plus". Crew pay is probably minor, since they can get away with a "skeleton crew"...not much more than a night watchman. The profitability comes from contango (oil for forward months is higher than spot price)..One problem starting to surface is berth spaces....they're getting scarce.

2008 Dec 12 10:38 PM

[Ames Tiedeman:]

Not a terribly theses. My question is this?: How much is already baked in?

2008 Dec 13 05:49 PM

[manusceo:]

If this guy hasn't even done the basic research to find out what Ship Finance does, how much credence can you put into his opinion?

Feb 06 10:37 AM