Decoding the recent fall in tanker stocks
A dream run for crude tanker companies
The changes in trade patterns of crude oil over the past year proved to be a boon for shipowners. Europe’s move to reduce the dependence on Russian energy in the aftermath of increased tension between Russia and the West led to a surge in seaborne crude trade between Russia and Asia (particularly India and China). The redirected Russian barrels on these long-haul routes compared to short-haul or pipeline trade between Russia and Europe accelerated the pace of recovery in the crude tanker market, which led to a sudden spike in demand and earnings of mid-sized crude carriers. VLCCs were at the receiving end in 1H22 as changes in trade patterns largely benefited mid-size crude carriers at the expense of large crude carriers, but the demand and earnings of VLCCs also picked up in the latter part of the year due to firm seasonal demand and recovery in Chinese demand. In 2022, crude tanker companies had a great year amid market disruptions and shifting trade patterns as they reported solid growth in revenue and profitability. The same was reflected in stock prices under over coverage and the Drewry Crude Tanker Equity Index surged 95.1% in 2022.
What is driving the price decline?
Although the crude tanker stock prices have been on a downward trajectory since 1 March, they are still above the lows seen in January 2023. Crude tanker stocks under our coverage declined on average by 10.7% in March despite robust spot earnings as US and Europe bank woes put sell-side pressure on the stock market. The impact of the sharp decline in stock prices during early April, following the OPEC+ announcement to reduce output from May, was offset by the gains recorded in the following week. The overall fall in crude tanker stock prices over the past two months due to seasonal trends, aggravated by the banking woes and the fear of potential economic slowdown.
Will tanker stocks continue to decline?
Stocks could slide further in the summer before recovering in the latter half of 2023. Asset prices remained stable over the past few months, indicating favourable supply-demand fundamentals. The positive outlook will be supported by healthy growth in tonne-mile demand and a marginal increase in supply as the current orderbook is at a record low. Additionally, there is limited scope for new ordering for deliveries up-to 2025 because of the tight availability of slots at shipyards. The crude tanker utilisation is expected to improve, keeping freight rates elevated in 2023-24. Average spot earnings for 2023-24 are expected to remain above the breakeven rates for major crude carriers.
Source: Drewry Maritime Equity Research