The Oil Tanker Sector is on Fire

Some traders minimize the importance of fundamental analysis. Granted, stock market prices typically reflect future expectations not the present. However, it is useful to understand the arguments about why a given sector might be in a bull or bear market. For example if you are holding positions in a bull market, understanding why it is in a bull market can give you the fortitude to widen stops and maintain a core position during strong pull backs. Otherwise the bull just might shake you off.

In the case of the oil tankers sector, it is presently in a bull market and has been since December 2021 when most other sectors and the general stock markets such as the S&P500 have been in a bear market. See the Oil Tanker Companies table with links to relevant charts in stockcharts.com.

I have researched the oil tanker sector bull market and believe the following drivers are behind it:

  • Per BIMCO orders for the building of new oil tankers were at record lows in the first half of 2022.

  • Per gcaptain.com a shrinking oil tanker fleet may may deepen the energy crisis. Key points here are:

    • The global fleet of oil tankers is likely to decline in number.
    • Ships are scrapped as they age, and the average age of the global tanker fleet has been increasing, which would indicate more scrapping upcoming.
    • Given the record low number of orders for new oil tankers, as well as the increased need of scrapping ships in the aging fleet, tankers rates will remain high for the forseeable future. A supply response that leads to an increase in ship building won’t happen overnight. This isn’t the software business. It takes time to build ships. Rates shall remain high and thus will the per-ship profits of tanker companies.

  • The Russian crude import ban starting December 5th 2022 will lead to inefficient routes which means higher transportation costs and more profit for the oil tanker sector. See this and this.

Risks to the oil tanker sector bull market include:

  • A Russian-Nato/Ukraine deal that ends sanctions. There is no sign of this yet, however, any hint at this could have a dramatic effect on the oil shipping sector prices.
  • A decline in oil demand due to global recession.
  • The market discounts the lack of oil tankers in anticipation of a ship building spree as a supply response. While initially more tankers means more earnings, once supply needs are met by a larger oil tanker fleet, and the Baltic Dirty Tanker Index starts to give any indication of declining oil tanker rates, the bull market may end.