When I last wrote about crude oil tankers in
, I could talk about devoting excess shipping capacity to the
purposes of floating storage. The crude oil futures market was in a
deep contango then, meaning the crude oil could be sold forward at
a price sufficient to cover the costs of storage.
Those days have come and gone; the crude oil futures market is
backwardated, meaning the holder of floating inventory would have
to sell the futures for less than the spot price, and refining
margins are narrowing to the level where selling the refined
product futures forward to lock in both the crude oil price and the
refining margin no longer is the slam dunk it once was. Tankers
will have to earn their keep the old-fashioned way, by moving crude
oil from Point A to Point B.
Tankers' Relative Performance
On the surface, which is where you hope your tanker remains en
route, the industry remains in overcapacity. The supply overhang in
the Persian Gulf for nominations over the next 30 days has remained
more than 20% since the end of July; this is the highest level of
overcapacity since March.
Moreover, tariffs between the Persian Gulf and Japan continue to
scuttle along near their post-crisis lows. These tariffs are
measured using the Worldscale index wherein 100 is set to the
industry's expected level. If reporting prices based on what an
industry panel expects seems odd, it is.
The most certain sign of a market bottom is when stock prices
refuse to fall on continued bad news. Let's compare the total
return of the Bloomberg index of tankers, which includes
Nordic American Tankers
Tsakos Energy Navigation
) to that of the MSCI-Barra World index. It stopped its rapid rate
of decline in the fall of 2012 and has been moving higher since
While some of this improvement in relative performance can be
credited to the softness in the MSCI-Barra World index during the
era of Federal Reserve policy confusion, some of this is in
response to a much stronger market for crude oil itself. Dubai
Fateh Blend, the key benchmark for Persian Gulf crude oil moving
eastward into Asian markets, has increased almost 15% since April.
Stronger prices in the absence of supply shocks are a function of
rising demand, and this demand ultimately will reduce the tanker
Finally, the tanker market has some of that margin for error
Benjamin Graham disciples love. It disconnected from the MSCI-Barra
World index in 2010 and sat out the global bull market of
2012-2013. While no one should fall into the trap of thinking
unloved stocks are a good buy simply because they are unloved,
which index below has discounted three years of bad news and has
outperformed the other since March by 17.3% to 7.4%?