A Review Of Short Interest In The Tanker Market

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Includes: ASC, DHT, FRO, KNOP, NAT, NNA, TNK, TNP
by: MTF Investing

Summary

The tanker market is experiencing a surge in rates heading into the winter season.

The surge should correlate to higher profits for the tanker industry and a pullback in short rates.

A review of the rates show that Ardmore Shipping and DHT Holdings have seen a surge in shorts, although probably not to a level that will trigger a short squeeze.

Frontline, Nordic American Tankers, and Teekay Tankers have higher levels of shorts, but have not seen a surge over the past nine months.

Tanker rates have been rising lately, thanks to a combination of cheap oil and seasonal swings. Tradewindsnews.com recently posted the following about the increase:

"While that rally corresponded to a Saudi crude production hike to record highs on a sustained basis, the present rally owes more heavily on both a recent rise in ton-mile demand and an increasingly disjointed market."

Some recent charters of VLCCs have seen the rates climb to $66K/day. The momentum and surge may continue for a while which will help to propel rates during the winter market:

"Our feeling is that [VLCC rates are] going in the right direction but [momentum] needs to gather soon as the winter market that always brings higher rates is running out of time considering we are about to enter November."

This surge may help to drive rates up and trigger a short squeeze in the industry. A quick look at the short interest helps to identify which companies are more likely to experience a squeeze. The short interest is measured by the number of shares short versus the number of shares outstanding.

(Source: data plotted from NASDAQ.com)

The Higher Shorts

Nordic American Tankers (NYSE:NAT) has been fluctuating between 8-10% over the past nine months, with the percentage falling down to around 8% recently. Over the same period, the stock has been relatively flat.

Frontline Ltd. (NYSE:FRO) has fluctuated from a low of about 7.5% to a high of almost 11%. Over the same period the price has fallen from $4 to a low of $1.18. The company is currently facing $190M in convertible bonds that will come due in April 2015. The selloff has been driven by a bearish sentiment towards the company and not by the level of shorting activity.

Teekay Tankers Ltd. (NYSE:TNK) has climbed recently from a low of just under 7% to the current level of 10.5% over the past nine months. Over the same time period the stock has bounced from a low of just above $3.25 to a high or $4.40 before reaching the current level of $4.27.

The Lower Shorts

KNOT Offshore Partners LP (NYSE:KNOP) has maintained a short interest of under 1% over the same time period. While shares have fallen recently after fluctuating around $28, there isn't enough short interest to trigger a squeeze.

Tsakos Energy Navigation Limited (NYSE:TNP) also has a small short percentage, fluctuating around 1%. At the same time the stock has moved between $8 and $5, currently sitting at just under $7.

Navios Maritime Acquisition Corporation (NYSE:NNA) has been sitting around the 1% mark. The company was on a steady decline over the past nine months, but seems to have found a bottom and rebounded to the current price of $3.

The Spikes

DHT Holdings, Inc. (NYSE:DHT) has seen its short interest slowly increase from a low of 1% to the current level of almost 5.5%. At the same time the stock has fallen from a high of over $8 down to a low of $2.50, and is currently sitting at $3. The increase in shorts isn't the only reason the stock has fallen, but with a current short percentage of 5.5% of outstanding shares, and almost 8% of the float, there is some room to run.

The company announced in September that it would be acquiring the Samco Fleet of seven VLCCs with an average age of 4.5 years. This will increase the fleet to 14 VLCCs, six additional VLCCs under construction, two Suezmaxes, and two Aframaxes. With the run up in VLCC rates, it will likely help the company in the 4th quarter, but have negligible effect on the 3rd quarter. The company will report earnings on November 11th, and depending on earnings, shorts may begin to cover.

Ardmore Shipping Corporation (NYSE:ASC) has seen a slight uptick in shorts, from a low of under 1% in June to the current percentage just over 3%. When compared to the float, the rate jumps to 5.5%. The amount is not that much, but represents an increase of over 200% of shares outstanding. At the same time, the stock has fallen from a high of almost $15 in June to a low of $8.80 in October.

Since then the company released 3rd-quarter earnings, the company has announced a stock repurchase plan based on the low stock price compared to the rising Baltic Clean Tanker Index.

Conclusion

NAT, FRO, and TNK have higher short levels than their peers, but have maintained those levels over the last nine months. FRO has seen that level rise recently, but they are all within the nine month trend. KNOP, TNP, and NNA all have relatively low levels of shorts, and are not likely candidates for a short squeeze. Both DHT and ASC have seen their short levels spike, although they may not be enough to trigger a true short squeeze. Short updates will be released on the 11th of November and will give investors another point of reference for the industry. The rising tanker rates should see some of the short sellers begin to cover their positions.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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