The recent Japanese earthquake and tsunami has caused major damage and closing of most of the Japanese ports. It has also resulted in the closure of approximately one-third of Japan's total refining capacity. Crude currently on route to Japan will now likely be discharged at refineries in Asia (India’s Reliance Industries can be a big beneficiary) and the refined products will then be carried on to Japan once ports reopen. This is likely to be a positive for product tankers while negative for crude tankers rates. Before going into reasoning, let’s first understand the difference between product tankers and oil tankers.
Crude tankers move large quantities of unrefined crude oil from its point of extraction to refineries.
Product tankers, generally much smaller, move petrochemicals from refineries to points near consuming markets.
An increase in Japanese import of petroleum products due to closure of domestic refinery capacities should drive an increase in ton miles for product tankers. This is going to help Product tanker rates which have started moving higher already in forward contracts. Tanker owners with more exposure towards product tankers are the likely beneficiary. Capital Product Partners Limited (CPLP) is one such company and one can go long on it.
The impact on crude tankers (which only carry crude oil and not refined petroleum products) will likely be a negative. Japan imports most of its crude from Saudi Arabia. As crude currently on route to Japan will now likely be discharged at other refineries in Asia (which are nearer to Saudi Arabia), it would lead to shorter ton-miles for crude tankers. Crude tanker owners like Frontline Ltd (FRO) may be negatively affected in near term.