Drewry: Crude Tanker Equity Index Up 19.4% So Far This Year

The Drewry Crude Tanker Equity Index has been largely on an uptrend since early July and registered an impressive gain of 28.6% YTD despite a decline of 7.4% in the past month (from 7 November to 7 December due to demand concerns in China and weak global manufacturing activity in November) and substantially outperformed the broader S&P 500, which moved up 19.4% YTD.

Similarly, the Drewry Product Tanker Equity Index showed a consistent rise since late July but only achieved a modest growth of 1.1% YTD. A 19.0% plunge in 2Q23 amid concerns of short-term economic headwinds and a recent 5.0% decline in the past month (from 7 November to 7 December) offset the gains made in 1Q23 & between July and October 2023. The index has underperformed the broader S&P 500, which moved up 19.4% over the same period.

Recently announced production cut of 2.2mbpd by OPEC+ from January 2024 could put some pressure on vessel earnings and asset prices in 2024. However, rising US oil production and favourable market dynamics will prevent a major decline in earnings and asset prices of oil tankers.

Teekay Tanker is the best performer with stock price surge of 58.9% YTD followed by Frontline (up 58.8%) and Nordic American Tankers (up 28.1%). The stock of Tsakos Energy Navigation – a company with a diversified fleet and nearly 76% exposure to the time charter market – jumped 18.5%. Euronav’s stock gained 12.8% YTD, whereas DHT Holdings – a pure VLLC player moved up 10.2% YTD.

Scorpio Tankers recorded a marginal decline of 0.6% YTD although the stock is largely on the rise since mid-July but the decline between February and the first half of July offset these gains. Ardmore’s stock price decline of 5.2% over the same period as the increase in stock price over the past four and half months was not enough to outweigh the decline in 1H23 due to concerns of an economic slowdown.

TCE revenue of the crude tanker companies under our coverage surged 18.1% YoY to USD 946.8mn from USD 801.4mn in 3Q22. The increase was led by higher TCE rates amid a favourable market dynamics. Although product tanker companies remained profitable in 3Q23, their topline and profitability plunged substantially. The average TCE rates realised by the vessel in the companies’ fleet in 3Q23 was nearly 35% lower than the record high seen in 3Q22. Factors responsible for this decline included shift in fuel preferences (gas to oil switch), changes in trade patterns and increased stocking activity by European economies ahead of winter.

Spot TCE rates of crude tankers, on average, jumped 22.2% MoM in November, and we expect day rates for tankers to improve further in December. On the other hand, it was a mixed bag for product tankers rates, which were on the rise on the North West Europe-West Africa route whereas it was on the decline on the Middle East-UK Continent and Middle East-Japan route. On average, product tanker earnings also moved up 8.3% in November and are expected to increase further due to increased buying amid the winter in the northern hemisphere.

Asset prices are on the rise despite some corrections in July and August. On an average, second-hand asset prices of oil tankers moved up 15.6% YTD. As of November, the newbuilding as well as second-hand price index for crude and product tankers are at the highest level since January 2015.
Source: Drewry Maritime Financial Research