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Drewry: Tanker Equity Index up 15.4% Year to Date

As of 4 July 2024, the Drewry Crude Tanker Equity Index strengthened 15.4% YTD (vs 15.5% increase in S&P500), driven by high seasonal demand and tight tonnage supply. However, the index slid 5.5% MoM in June due to declining VLCC rates amid China’s muted demand growth and extended OPEC+ production cuts. Teekay Tankers led with a 40.7% YTD rise, followed by Tsakos Energy Navigation at 33.1% YTD, Frontline at 26.2% YTD, DHT Holdings at 15.8% YTD and Euronav at 14.8% YTD. Meanwhile, Nordic American Tankers declined 5.2% YTD.

Drewry’s Product Tanker Equity Index surged 32.2% YTD, outperforming the S&P 500, which rose 15.5%, driven by tight tonnage and minimal fleet expansion. Rerouting of vessels to avoid the Red Sea disruption stretched voyage lengths, boosting tonne-mile demand and earnings. In 2Q24, the index rose 18.4% compared to the S&P 500’s 3.5% gain, supported by firm rates from increased refinery runs and high summer demand, but in June, the index remained steady. Ardmore Shipping led with 59.3% YTD growth, followed by Scorpio Tankers at 32.7%, with Torm, d’Amico International Shipping, and Hafnia rising 28.3%, 29.3%, and 20.4% YTD, respectively.

Companies are moving ahead with their fleet renewal by selling their ageing vessels. Scorpio Tankers sold its five oldest MR tankers (four 2012 built and one 2013 built) for around USD 179mn, leaving the oldest tankers in its fleet built in 2014. Teekay Tankers also continued to offload its ageing tankers, including a 2005-built Suezmax. In 1Q24, the company sold a 2004-built Aframax. Similarly, Tsakos Energy Navigation offloaded two vessels to rejuvenate its fleet, a 2008-built Aframax and a 2007-built LNG carrier.

Crude tanker and Product tanker asset prices have seen an uptrend of 6.5% YTD (ending June) and 4.6% YTD respectively on average and due to tight tonnage and higher freight rates, this uptick will continue until 2025.

Oaktree Capital Management, Torm’s major shareholder since 2015, recently sold 6.9 million shares reducing its ownership from 54% to about 46.7%. This marks Oaktree’s second significant sell-off in the last few months, following a previous divestment last December. The private equity fund originally acquired its stake during Torm’s restructuring in 2015. Oaktree is taking advantage of the current surge in asset prices in different shipping sectors and has trimmed its stake in Star Bulk and Eagle Bulk in 2023.

In June, spot TCE rates on three selected routes plunged 22.2% MoM on average due to declining VLCC rates amid China’s stalled demand growth and extension of OPEC+ production cuts. Similarly, product tanker spot TCE rates on five routes fell 4.7% MoM on average amid low activities and fewer inquiries.

The recent IEA report forecasts a decline in oil demand by the end of the decade, driven by the shift towards electric vehicles and more efficient engines, reducing demand for gasoline and diesel. While naphtha and jet fuel demand will rise, the overall clean petroleum product market is expected to decline from 2028, leading to market volatility and fleet adjustments.

Crude tanker owners are moving to the clean trades, which are hitting multi-year highs due to the Red Sea shipping crisis. Spot earnings for LR2 and LR1 trades have risen significantly, influenced by attacks on shipping in the Red Sea and increased Middle Eastern shipments. Recently, larger crude tankers, including VLCCs and Suezmaxes, have begun competing in the product tanker market due to the underperformance of dirty large carriers compared to LRs. This shift could stabilize LR volatility but also potentially limit their earnings peak. Traditionally, Q3 sees low crude exports and high product demand, which may further impact market dynamics.
Source: Drewry Maritime Financial Research

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