Tanker shipping stocks pull away from the pack, hitting fresh highs

Tankers stocks are doing great. Dry bulk and container stocks temporarily stopped the bleeding. “Maxim stocks” still underperform.

a photo of Wall Street; shipping stocks are seeing mixed fortunes

Shipping stocks are not considered “buy and hold” investments these days — for good reason. It’s all about timing. Case in point: Tanker stocks are now soaring after years mired in negative territory.

Fresh 52-week highs were hit Tuesday by Scorpio Tankers (NYSE: STNG), Ardmore Shipping (NYSE: ASC), Euronav (NYSE: EURN), DHT (NYSE: DHT), International Seaways (NYSE: INSW) and Teekay Tankers (NYSE: TNK).

Tankers stocks are up double digits year to date (YTD), in some cases triple digits. However, the rebirth of tanker stocks comes after two painful “bagholder” years. Anyone who bought and held a basket of tanker stocks since January 2020, pre-COVID, would have only recently broken even.

To gauge how shipping stocks have fared, American Shipper crunched the numbers by segment — tankers, dry bulk and containers — both YTD and across the COVID era.

The analysis also examined Greek-sponsored micro-cap shipping stocks in various segments involved in fully disclosed, dilutive sales of common equity and warrants facilitated by New York investment bank Maxim Group. “Maxim stocks” appear to attract retail investors looking to gamble on short-term price swings even though data confirms that these shipping stocks fare much worse than others over time.

Winners and losers YTD

The pattern of winners and losers YTD is very different from the medium-term pattern over the course of the pandemic. From Jan. 1 to Monday’s close, tanker stocks were up 88%. Dry bulk stocks were up 21% and container shipping stocks just 1% (for methodology, see below).

In contrast, shares of shipping companies that have sold equity via Maxim-related deals were down 42% YTD.

(All charts by American Shipper based on adjusted closing price data from Yahoo Finance)

This year has been a continual upward climb punctuated by a few brief pullbacks for tanker stocks. Dry bulk shares kept pace with tanker shares until June, after which lower spot rates and economic headwinds took their toll. Dry bulk shares have seen a small recovery since mid-July.

Container shipping shares maintained their winning streak until the end of March. Then they fell back, although, like dry bulk shares, they’ve regained some ground since mid-July.

The Maxim-linked shipping share average jumped briefly in March due to a fleeting spike in one equity, Imperial Petroleum (NASDAQ: IMPP), after which that stock and the overall average slid lower.

Product tankers trump crude tankers in 2022

Tanker stock performance has diverged based on tanker type this year. Shares of pure product-tanker owners are far outperforming the rest, up by an average of 173% year to date. Mixed fleet owners — with both crude and product tankers — are up 73%. Pure crude-tanker owners are up 47% (an impressive gain considering that crude tanker owners are still reporting losses).

chart of shipping stock prices

COVID-era shipping stock performance

Over the course of the pandemic, container shipping stocks have been by far the biggest winner. As a group, they’re still up 409% on average since Jan. 1, 2020, despite flat performance in 2022 YTD.

Dry bulk shares have been the second-biggest winner. Even with this year’s retrenchment, they’re up 129% since January 2020. In contrast, tanker stocks — which are more in the spotlight this year — are essentially flat versus January 2020 (up 3% as of Monday’s close).

chart of shipping stock prices

Highlighting the importance of stock-trade timing, the performance of different tanker segments over the medium term was the reverse of 2022 YTD performance. Since Jan. 1, 2020, product tanker stocks fared the worst, mixed-fleet stocks were in the middle, and crude tankers fared best.

‘Maxim stocks’ down over 90% vs. pre-pandemic

The performance of the Maxim-linked shipping equities over the medium term highlights just how important it is to get in and out of such equity bets very quickly.

Keeping in mind that the maximum loss is 100%, the share values of Top Ships (NASDAQ: TOPS) and Globus Maritime (NASDAQ: GLBS) were both down 98% at Monday’s close versus Jan. 1, 2020. Over the same time frame, shares of Seanergy (NASDAQ: SHIP) and Castor Maritime (NASDAQ: CTRM) were both down 91%.

Shares of Imperial Petroleum — a spinoff of StealthGas (NASDAQ: GASS) that Maxim has supported — have lost 95% of their value since the stock began trading in early December. Shares of OceanPal (NASDAQ: OP) — a spinoff of Diana Shipping (NYSE: DSX) that conducted an offering with Maxim as sole bookrunner — have lost 91% of their value since they began trading in late November.

A new shipping equity doing Maxim-placed offerings emerged last month. Seanergy spun off United Maritime Corp. (NASDAQ: USEA) into a separate listing that began trading on July 7. 

In just one month, United Maritime’s shares shed 71% of their value.

Methodology for shipping stock averages:

Averages use adjusted closing price data of U.S.-listed shipping stocks from Yahoo Finance. Segment averages were not weighted by market cap.

Only large “pure” owners in each segment were included in averages. For the pure product-tanker average: Scorpio Tankers and Ardmore Shipping. Crude tankers: Euronav, DHT and Nordic American Tankers (NYSE: NAT). Mixed-fleet operators: Teekay Tankers, Frontline (NYSE: FRO) and International Seaways. Tanker owners with significant holdings in non-crude/product segments, such as Navios Partners (NYSE: NMM) and Tsakos Energy Navigation (NYSE: TNP), were excluded.

The dry bulk average was made up of the four largest U.S.-listed pure bulker owners by market cap: Star Bulk (NASDAQ: SBLK), Golden Ocean (NASDAQ: GOGL), Genco Shipping & Trading (NYSE: GNK) and Eagle Bulk (NASDAQ: EGLE).

The container shipping average comprises liner operators Zim (NYSE: ZIM) and Matson (NYSE: MATX), as well as pure container-ship lessors Danaos (NYSE: DAC), Global Ship Lease (NYSE: GSL) and Euroseas (NASDAQ: ESEA). Costamare (NYSE: CMRE), Atlas (NYSE: ATCO) and Navios Partners were excluded due to significant noncontainer holdings.

The Maxim stocks average comprises Top Ships, Seanergy, Castor Maritime, Globus Maritime, Imperial Petroleum and OceanPal. Due to the recency of its listing, share pricing of United Maritime was excluded.

Click for more articles by Greg Miller 

War effect on crude trade: Long-lasting and just beginning

It appears increasingly likely that war-driven changes to global crude flows will persist — and grow — through 2023.

photo of a crude oil tanker

Is the shift in global crude flows due to the Ukraine-Russia war a fleeting event or a more lasting, structural change?

At first, many market watchers and investors viewed it as short-lived. It now seems like something to count on for at least the medium term. More Russian crude will likely head to India and China for a longer period of time, and more Atlantic Basin and Middle East crude will head to Europe to replace Russian barrels.

“Oil supply chain disruptions related to Russia’s invasion of Ukraine are proving to be durable and marked by significantly longer average voyages,” said Steward Andrade, CFO of Teekay Tankers (NYSE: TNK), during Thursday’s quarterly conference call. “These trade pattern changes are likely to be long-lasting.”

Executives of Euronav (NYSE: EURN) highlighted the same point on their quarterly call on Thursday. According to Brian Gallagher, Euronav’s head of investor relations, “This isn’t some event that happens over a few weeks. There’s a longevity to the structural change.”

Only the beginning

The EU ban on crude oil and petroleum product imports doesn’t take effect until Dec. 5 for seaborne shipments and Feb. 5, 2023, for pipeline imports.

As of now, Europe is still importing large quantities of Russian crude. Pre-invasion, volumes were around 4 million barrels per day (b/d). Various estimates put the reduction to date at around 700,000 to 1 million b/d. Tanker effects are already significant despite the transition being just one-quarter complete.

“We are only seeing the beginning of a story that will have a long tail,” said Euronav CEO Hugo De Stoop.

Upside for smaller and midsize tankers

War-driven trade changes have mainly impacted smaller tankers known as Aframaxes (with capacity of 750,000 barrels) and midsize Suezmaxes (1 million barrels). Larger tankers known as very large crude carriers (VLCCs, with capacity of 2 million barrels) are too big to call at Russian terminals.

Andrade explained, “Short-haul exports of Russian crude oil to Europe have fallen by around 700,000 b/d compared to pre-invasion levels, with Russian crude oil increasingly being diverted to destinations east of Suez, particularly to India and China.

“Europe is having to replace short-haul Russian barrels with imports from other regions, most notably from the U.S. Gulf, Latin America, West Africa and the Middle East. These changes are primarily benefiting Aframax and Suezmax tankers due to the load and discharge regions involved.”

Compares average seaborne crude oil flows in three months prior to invasion versus three months after (Chart: Teekay Tankers earnings presentation based on data from Kpler)

“When oil imported into Europe previously came five days from the Baltic and now comes approximately 20 days from the Middle East on a Suezmax or approximately 20 days from the U.S. Gulf on an Aframax, that is obviously helpful for ton-mile demand.”

Tanker demand is measured in ton-miles: volume multiplied by distance. The longer the average distance, the more tankers you need to carry the same volume.

“When China imports oil from the Baltic on Aframaxes — which we’ve seen recently — it’s another example of increased ton-mile demand due to changing trade patterns,” added Andrade.

More ship-to-ship transfers to VLCCs?

Euronav expects the war effect to benefit VLCCs as well, for two reasons: because of ship-to-ship transfers in the Russia-to-Asia trade and because of the strong interconnection between Suezmax and VLCC markets.

“The most efficient way to transport crude oil over long distances is obviously on a VLCC. So ideally, they would do transshipment,” said De Stoop, referring to Aframaxes or Suezmaxes loading in Russia and transferring cargo to VLCCs. 

“We’ve already seen a few of those, largely off Africa. We’ve also seen cargo being discharged in Libya and Egypt for relatively short periods then lifted again on bigger ships. The part of the industry that can do that [carry Russian oil] is trying to find the most efficient way to carry that oil to the Far East.”

Suezmax-VLCC connection

Meanwhile, if Suezmax rates rise too high versus VLCC rates, oil shippers traditionally combine two Suezmax cargoes into one lot and use a VLCC instead.

“There are a lot of markets where two Suezmax cargoes can go into one VLCC, so you have this push-pull effect,” said De Stoop. “When the Suezmax market is doing very well, and is seeing many more cargoes, that would naturally have a knock-on effect on the VLCC market. Those two markets are really, really interconnected.

“When we speak to the chartering desks of our clients, it’s usually the same people [booking Suezmaxes and VLCCs] and they monitor the price of one versus the other. In the last two or three weeks, we have seen a lot of cargoes that were shown to our Suezmax desk and then they disappeared and popped up in the [VLCC] pool. Two cargoes were being combined in order to be carried by a VLCC.

“Normally, it’s the VLCC segment that is doing the heavy lifting for all the other segments. This time around — because the disruption is coming from Russia and Russia is not a VLCC market — the pushing is coming from the smaller sizes.

“The Aframaxes are pushing the Suezmaxes and the Suezmaxes are now pushing the VLCCs. Simply because when you compare rates of Suezmaxes to VLCCs, it’s a lot cheaper to use VLCCs. [According to Clarksons, Suezmax rates are currently 30% higher.] 

“And that’s what we have seen in recent weeks. That’s the main reason why we believe the VLCC market improved after the Suezmax had already improved.”

Tanker earnings roundup

The VLCC market may be improving, but it was extremely weak in the second quarter and the early part of the third quarter.

Euronav, which owns VLCCs and Suezmaxes, reported a net loss of $4.9 million for Q2 2022 compared to a net loss of $89.7 million in Q2 2021. Its adjusted loss of 12 cents per share was just shy of the consensus outlook for a loss of 11 cents.

Euronav’s VLCCs earned an average of $17,000 per day in Q2 2022. So far in the third quarter, the company has 47% of available VLCC days booked at a significantly lower rate: only $12,700 per day. De Stoop attributed this to longer-haul voyages booked during a period of weak rates and VLCCs employed on lower-earning repositioning voyages.

Teekay Tankers — which owns a fleet of Suezmaxes, Aframaxes and product tankers — reported net income of $28.5 million for Q2 2022 versus a net loss of $129.1 million in Q2 2021. Adjusted earnings per share of 76 cents topped the consensus forecast for 61 cents.

Teekay’s spot-trading Suezmaxes earned $25,310 per day in Q2 2022. So far in the third quarter, the company has 43% of its available Suezmax days booked at an even higher average rate: $29,600 per day.

Click for more articles by Greg Miller 

US exports of crude oil and diesel are climbing even higher

Tankers are very busy loading up with U.S.-produced crude oil and refined products sold to overseas buyers.

A photo of a tanker off Texas. US exports of crude, diesel and gasoline are rising

At-the-pump prices for gasoline and diesel may be down from all-time peaks but they remain exceptionally high. Simultaneously, U.S. exports of crude and refined products to Europe and Latin America continue to rise.

“Rising [diesel] exports shipments have drained domestic supply,” reported Argus on Monday.

Citing ship-movement data from Vortexa, Argus said that diesel exports averaged 1.45 million barrels per day (b/d) July 1-13, the highest level since July 2017.

Data provided to American Shipper by Kpler showed that total clean products exports (including diesel, gasoline, jet fuel and other products) averaged 2.5 million b/d through the first half of July, one of the highest monthly averages since August 2019.

chart showing diesel prices
Chart: FreightWaves SONAR

U.S. refined products heading south

Reid I’Anson, senior commodity analyst at Kpler, told American Shipper, “On the clean product side of the ledger, exports are pretty much back in line with pre-pandemic levels, with most of these barrels ending up in Latin America, especially Mexico.”

Argus said that U.S. diesel exports to Mexico and South America are now at their highest level in a half-decade.

Kpler puts total U.S. tanker exports — including crude, clean products and dirty products (such as fuel oil) — at 5.95 million b/d month to date, up around 5% from May-June levels. The average for the first half of July is within shooting distance of the all-time high of 6.1 million b/d in December 2019.

July 2020 average is month to date. Chart: American Shipper based on data from Kpler

More U.S. crude to Europe, less to Asia

The resurgence of America’s products exports to pre-pandemic levels coincides with rebounding crude exports. More U.S. crude is going to Europe and less is going to Asia, which is in turn buying more crude from Russia.

U.S. crude exports “continue to maintain consistency at around the 3.1 million b/d level, with strong volumes heading for Europe maintaining in July,” said I’Anson.

There are three main drivers of U.S. crude exports, according to ship brokerage BRS: the emergency Strategic Petroleum Reserve (SPR) release in the wake of the Ukraine-Russia war, recovering U.S. crude production, and limits to U.S. refinery intake capacity.

Erik Broekhuizen, head of tanker research and consulting at Poten & Partners, noted in a report on Friday that most of the SPR crude has gone to domestic refiners in the U.S., with only a small portion going overseas, mostly to Europe.

“It does not really matter where the SPR crude is being refined,” he explained. “The oil market is a global marketplace and prices are driven by worldwide supply/demand dynamics.”

As a result of the SPR release, higher domestic production, and “U.S. refineries already running flat out with utilization rates in the high-90% range, we expect most of the additional [non-SPR] barrels to hit the export market,” said Broekhuizen, who predicted that U.S. crude oil exports could increase by 1 million b/d or more during the next six months.

Thus, the SPR release will “turbocharge” exports even if SPR crude itself is not being exported.

Limits to US refinery intake

According to BRS, “U.S. refinery intake has oscillated around 16.5 million-16.7 million b/d over recent months, in line with the five-year average but roughly 1.4 million b/d below its historical high. There is little potential that [U.S.] refining throughputs should rise further this year given that 1.3 million b/d of U.S. refining capacity was shuttered over 2020-21.

“Indeed, we believe that there is more potential for unplanned stoppages over the coming months, either in the wake of hurricanes or from refineries being run so hard in the wake of soaring transport fuel crack spreads that problems emerge.”

In light of domestic refining limits, BRS expects U.S. crude exports to continue to rise this summer, potentially reaching 4.5 million b/d by the end of this year. It predicts U.S. crude exports will regularly reach 5 million b/d next year and will “occasionally touch 5.5 million b/d” — and that “the U.S. will be the largest source of incremental crude tanker demand this year and beyond.”

Click for more articles by Greg Miller 

Batten down the hatches: Shipping stocks ‘unable to escape the torrent’

photo of stock chart; shipping stocks are fallingBulk commodity shipping stocks held up well before this month. Now they’re falling alongside container shipping stocks.

photo of stock chart; shipping stocks are falling

Bulk commodity shipping stocks kept rising in May even as the broader market fell, offering shelter from the storm. Not so in June. With few exceptions, dry bulk and tanker stocks that previously held up are sinking. Declines for container shipping stocks have accelerated.

Shipping stocks have been “unable to escape the torrent,” wrote Clarksons Platou Securities analyst Frode Morkedal. “Demand destruction is a major source of concern.”

Ben Nolan, shipping analyst at Stifel, said, “The equities of a number of sectors in shipping are extremely sensitive to the shift in the broader market.” 

In the past week alone, shipping stock sentiment have been hit by a World Bank warning on stagflation; a report from FreightWaves maintaining that import demand is “dropping off a cliff”; the announcement of an 8.6% inflation gain for May, the highest increase since 1981; and resurgent COVID restrictions in Shanghai and Beijing.

The Dow Jones Industrial Average (DJIA), S&P 500 and NASDAQ Composite all hit fresh 52-week lows on Monday. Shipping stocks sank across the board.

Shipping stock moves since June 1

Container and dry bulk names have been the biggest losers this month.

As of Monday’s close, shares of liner companies Zim (NYSE: ZIM) and Matson (NYSE: MATX) were down 25% and 15%, respectively, versus their June 1 open. Container-ship lessor Danaos (NYSE: DAC) was down 21%, while Costamare (NYSE: CMRE) — which leases container ships and owns dry bulk ships — was down 18%.

Among the dry bulk owners, Star Bulk (NASDAQ: SBLK) was down 24% month to date, Eagle Bulk (NASDAQ: EGLE) 22% and Genco Shipping & Trading (NYSE: GNK) 18%.

Change from close on Monday vs. open on June 1. Chart: American Shipper

Container and dry bulk stocks have fallen faster than the DJIA, S&P 500 and NASDAQ Composite, whereas tanker stocks have lost less ground than the indexes. “Energy-related shipping equities were more insulated,” noted Nolan.

DHT (NYSE: DHT), which operates very large crude carriers (VLCCs; tankers that carry 2 million barrels of crude), is down only 6% this month, despite the fact that VLCCs are still mired in their worst below-breakeven slump in three decades.

Product tanker stocks have been the best performers in June.

Shares of Ardmore Shipping (NYSE: ASC) and Scorpio Tankers (NYSE: STNG) are actually still up 2% for the month, despite falling with the rest of the shipping names on Monday.

Product tanker spot rates remain sharply higher than the five-year average, at $40,000-$50,000 per day, according to Clarksons. Rates are being buoyed by trading dislocations from the Ukraine-Russia war and the global scramble for scarce diesel and gasoline.

Product tanker spot rates. Chart: Clarksons Platou Securities. Data sources: Clarksons Platou Securities, Clarkson Research

Declines vs. 52-week highs

Shares of different shipping segments hit their 52-week highs at different times.

Container shipping shares generally peaked around late March. The turning point coincided with a plunge in domestic transportation stocks on fears of a looming freight recession, initially fed by reports from FreightWaves.

Container shipping shares are also falling due to a decline in spot rates from their highs, despite the fact that spot rates remain exceptionally strong, contract rates are much higher this year and liner companies expect to earn even more in 2022 than last year.

In contrast to container shipping stocks, most dry bulk and tanker stocks hit 52-week highs in late May. Dry bulk stocks have fallen much faster than tanker stocks since then. As a result, container shipping stocks and dry bulk stocks have seen sharper drops from 52-week highs than tanker stocks.

Chart: American Shipper

The exception is Nordic American Tankers (NYSE: NAT), which owns Suezmaxes (tankers that carry 1 million barrels of crude). Shares of NAT are down 46% from a 52-week high reached a year ago.

Shipping stock performance during pandemic

Looking further back, different shipping segments have seen very different stock behavior during the pandemic era.

Dry bulk and container shares fell sharply in H1 2020, at the onset of COVID. Container stocks rebounded first, in H2 2020. Dry bulk stocks began their run-up in early 2021.

Both dry bulk and container stocks have far outpaced the broader market indexes. Since Jan. 1, 2020, Danaos is up an astonishing 607%, despite the recent pullback. Zim went public on Jan. 27, 2021, at $15 per share. Even with its recent slide, it’s still up 222% from the IPO price.

Among dry bulk names, Safe Bulkers (NYSE: SB) is up 138% since pre-COVID, Golden Ocean (NASDAQ; GOGL) 121% and Star Bulk 116%. Container-ship lessor Global Ship Lease (NYSE: GSL) is up 114%.

Tanker stocks followed a totally different path. Pre-COVID, tanker rates and share prices were strong, driven by tensions in the Middle East and U.S. sanctions.

In the pandemic era, tanker stocks initially rose as ships filled with floating storage cargoes in Q2 2020, then fell back thereafter as bloated inventories cut transport demand. Tanker equities have recently been supported by the Ukraine-Russia war and sentiment on increased fuel demand for air and land-based transport.

Because tanker rates and sentiment were high pre-COVID, most tanker stocks are now trading lower than they were on Jan. 1, 2020. 

Change from close on Monday vs. open on Jan. 2, 2020 (except for Zim, vs. IPO price). Chart: American Shipper

NAT is down 61%, DHT 34%, Frontline (NYSE: FRO) 32% and International Seaways (NYSE: INSW) 24%. Unlike container and dry bulk stocks, the tanker stocks — including product tanker names like Scorpio — have underperformed the DJIA, S&P 500 and NASDAQ Composite across the COVID era.

Click for more articles by Greg Miller 

How new EU sanctions on Russia will shake up global energy trade

Russian sanctions: Map of Russia and Russian currencyEU sanctions on Russian petroleum exports could have much more serious repercussions than earlier U.S. moves.

Russian sanctions: Map of Russia and Russian currency

The Ukraine-Russia war has already shaken up global energy markets. Sanctions finalized Friday by the EU will shake them up a lot more — not only for the tanker industry but also for American diesel and gasoline consumers.

The EU is a vastly larger buyer of Russian petroleum than the U.S., which banned imports from Russia in early March. The new EU sanctions will end Europe’s imports of Russian seaborne crude by Dec. 5 and refined products by Feb. 3, 2023.

Chart: Frontline Q1 2022 conference call presentation

Perhaps even more importantly, the EU will phase in bans on EU insurance, reinsurance, technical services or any financial services for tankers carrying Russian crude and products to any country, including current buyers in India and China, over the same time frames.

The U.K. is also set to ban insurance and reinsurance for such tankers.

Over 90% of the world’s ships are insured in Europe and the U.K. The insurance ban could have “a dramatic impact on seaborne trade of Russian oil and oil products,” said brokerage and consultancy Poten & Partners. “The potential implications cannot be overstated.”

Russia crude exports

What does the new EU import ban have to do with U.S. fuel buyers? And how could tanker owners be affected?

Since the war began, Russia has been able to keep its crude exports flowing. It is replacing lost sales to the West with sales to India and, to a smaller extent, China.

Even before the ban, the EU has replaced 1 million barrels/day (b/d) in crude purchases from Russia, according to a Morgan Stanley report on Monday. But “there are limitations to the degree this ‘swap’ can extend further,” it said. As a result of those limitations, as well as supply contracts due to expire, it expects Russian crude production to decline by 1 million b/d between now and year-end.

Lower crude production in Russia — to the extent it’s not replaced by OPEC, the U.S. and others — is a tailwind for oil prices.

In tanker trades, the longer distance traveled by post-invasion Russian cargoes has boosted spot freight rates for Aframaxes (tankers with capacity of 750,000 barrels) and Suezmaxes (1-million-barrel capacity). These small and mid-sized tankers can be accommodated at Russian terminals.

To the extent Russian cargoes are eventually replaced by Middle East exports, tanker demand would shift toward higher-capacity VLCCs (very large crude carriers; tankers with 2-million-barrel capacity), according to Evercore ISI analyst Jon Chappell.

Yet there are a lot of moving pieces. Ship brokerage BRS made the counterargument Tuesday that the EU would source more crude from the U.S. — cargoes largely carried on Suezmaxes — leaving less U.S. crude to be exported to Asia, cargoes that move aboard VLCCs.

Russia diesel exports

The Russian export situation is much different in the product sector, particularly for diesel, than for crude, according to Morgan Stanley.

With the EU ban on top of the U.S. ban, Morgan Stanley believes Russian petroleum products will have a much harder time finding sufficient alternate buyers.

“If [Russian] refineries indeed struggle to find alternative buyers, it is likely that their own production would need to decrease. It seems likely that both crude oil production and refinery runs will decline over time, reducing supplies of both crude [and products] — especially diesel — to the rest of the world.”

To the extent lost Russian flows can’t be replaced by new refinery output elsewhere, that’s more bad news for diesel buyers. The average retail price of diesel in the U.S. hit a new record high of $5.703 per gallon this week.

Chart: FreightWaves SONAR (To learn more about FreightWaves SONAR, click here.)

EU restrictions on shipping insurance

Those outside of shipping circles may not yet grasp the significance of the EU (and expected U.K.) ban on insurance for ships with Russian crude and products cargoes bound for non-EU destinations.

“This is a critical measure” that will affect “a significant portion of the global tanker fleet,” emphasized Poten & Partners.

“This will likely prevent many mainstream owners from lifting Russian cargoes,” said BRS.

When the U.S. levied sanctions on tankers carrying Iranian and Venezuelan crude, exports ultimately kept flowing. Cargoes were loaded aboard older tankers with obscured ownership and no Western insurance and finance ties. Transactions were not conducted in U.S. dollars.

Tanker owner Euronav (NYSE: EURN) frequently highlights this issue on conference calls, referring to it as the “illicit trade.” At last count, Euronav estimated that this fleet had stabilized at around 55-60 elderly VLCCs, plus around 30 Suezmaxes.

‘Illicit’ trade to surge?

In order to maintain export flows after EU sanctions kick in, Russia and/or its cargo buyers would have to find enough replacement tankers, either by using already sanctioned Russian vessels or tapping the “illicit” fleet.

According to BRS, “Although [the insurance ban] will discourage mainstream tanker owners from lifting cargoes, it will not likely discourage niche tanker owners whose vessels are already involved in the transport of illicit Iranian and Venezuelan oil.”

The question is: Are there enough crude and product tankers available to enter this legally grey trade by the time EU sanctions kick in, beyond those already serving Venezuela and Iran? Poten estimated that “if the insurance ban takes most of the international fleet out of the equation,” Russia would need to secure services of 20 Aframaxes (for ship-to-ship transfer), 51 Suezmaxes and 43-48 VLCCs.

“Finding these vessels and arranging insurance could be very challenging,” warned Poten. “It may also make it difficult for these vessels to get employed in regular international oil trades.”

Click for more articles by Greg Miller 

US exports even more oil as domestic gasoline and diesel prices spike

crude tanker shippingTankers are loading up on American crude, diesel and gasoline exports. Can the free market withstand political pressure?

crude tanker shipping

U.S. oil exports are booming at the very time domestic gasoline and diesel prices are at or near their peaks. With America’s fuel prices expected to rise even further, the “resource nationalism” debate — should we be exporting commodities we need? — is heating up.

According to new tanker cargo volume data from Kpler, U.S. crude exports averaged 3.13 million barrels/day (b/d) in January-May. That’s the best first five months of the year ever. Exports of clean petroleum products — including the diesel and gasoline in such high demand domestically — averaged 2.32 million b/d. That’s the best first five months since 2019, pre-COVID.

exports of gasoline diesel crude oil shipping
Chart by American Shipper based on data from Kpler

U.S. gasoline, diesel and jet fuel markets are tight because seaborne exports are now strong whereas U.S. refining capacity is down 860,000 b/d relative to late 2019, Reid I’Anson, senior commodity analyst at Kpler, told American Shipper.

“This is a textbook case of a refinery sector that is running hard and yet does not have the capacity to meet demand,” he said. “This is not a problem easily fixed.”

Where are US exports going?

Given Monday’s EU decision to ban tanker imports of Russian crude and products, U.S. crude and products exports to Europe are expected to rise. A portion of the U.S. Strategic Petroleum Reserve release is already heading to Europe. Crude flows to Europe “have definitely picked up,” said I’Anson.

European imports from the U.S. were 1.27 million b/d in May, “a record high, accounting for 40% of all imported U.S. barrels, with volumes [favoring] the Netherlands, Spain and Italy. This has come at the expense of barrels into India, Canada and South Korea.”

U.S. clean products exports are still overwhelmingly headed to Latin America. According to Kpler data, Latin America accounted for 2.15 million b/d, or 87%, of all U.S. seaborne imports to any destination in May.

“It is still possible that trade flows shift with more U.S. products heading to Europe,” said I’Anson. “I think the reason we haven’t seen more of a shift yet is the fact that Russian clean and dirty [petroleum products] arrivals into the EU-27 have remained consistent — that is, until recently.

“In May, seaborne offtakes [from Russia were] 1.28 million b/d, down 155,000 b/d against January, before the invasion of Ukraine had begun. So, U.S. products could find more attractive bids into Europe, especially as embargoes come into force.”

Resource nationalism grows

Europe’s war-heightened demand for U.S. petroleum combined with America’s COVID-reduced refining capacity might lead some to ask: Why not curb exports and keep the oil in America? 

Resource nationalism is on the rise globally. Most recently, India has introduced export restrictions for wheat, Indonesia for palm oil and Malaysia for chickens. China has reduced export quotas for gasoline, diesel and jet fuel.

Last week, Energy Secretary Jennifer Granholm was asked whether U.S. oil export restrictions were a possibility. She replied, “I can confirm the president is not taking any tools off the table.”

Stifel shipping analyst Ben Nolan said of Granholm’s comment: “Hopefully, this was simple political positioning in a midterm election year. Because if not, we think it represents significant unawareness regarding the very sector being overseen.”

If there is a ban, “the implications for the U.S. oil and gas industry and the global economy would be extremely negative,” Nolan said in a new client note. A ban would cause “a sharp increase in the price of crude internationally, inevitably weakening the global economy.”

A resultant drop in U.S. oil drilling would cause “a sharp fall in natural gas production … very likely leading to limiting LNG [liquefied natural gas] exports at the very time the world needs the gas more than ever.”

Potential fallout

The U.S. banned crude exports to countries other than Canada between 1975 and the end of 2015.

In November 2021, long before the recent price surge, 11 senators asked President Joe Biden to “consider all tools available at your disposal to lower U.S. gasoline prices … [including] a ban on crude oil exports.”

At that time, IHS Markit, now a part of S&P Global (NYS: SPGI), warned what would happen if the export ban was reinstated.

The price of U.S. gasoline is connected to global crude and gasoline prices, not the price of domestically produced crude, argued IHS Markit. Also, most U.S. refinery capacity is not geared to handle light, sweet blends now produced in the U.S. That necessitates exports.

Banning crude exports “would set off a scramble for supply” and “discourage domestic production.”

The net effect would be “upward pressure on U.S. gasoline prices.”

Asked for an update of this position — and what a hypothetical ban on U.S. gasoline or diesel exports would mean — Kurt Barrow of S&P Global Commodity Insights told American Shipper: “Banning crude oil exports from the U.S. remains a poor policy choice with several potential unintended consequences. The market dynamics that lead to higher gasoline prices from a crude oil ban described in our media release of November … would continue to apply but in an amplified way given today’s extraordinarily tight oil markets. 

“Banning refined product exports would also have the real possibility of causing unintended shortages and higher, not lower, gasoline and diesel prices in certain parts of the U.S. market that rely, due to logistical reasons, on product imports from our allies in Europe and Canada.”

Click for more articles by Greg Miller 

Shipping stocks take another beating, sinking by double digits

shipping sharesShares of ocean shipping companies have given back much of their 2022 gains after another big sell-off on Monday.

shipping shares

Monday was a rough day all around on Wall Street but particularly painful for owners of ocean shipping stocks, which fell much more sharply than the broader market. Concerns over China’s economy, oil demand, Fed tightening and inflation added up to one of the worst trading sessions of the year for shipping names. From tankers to dry bulk to containers, double-digit plunges were widespread.

Even so, ocean shipping stocks — generally micro-cap equities traded by retail investors — are still outperforming the broader equity indexes and domestic transport stocks year to date (YTD).

Container shipping shares

Container lines remain on track for their best year ever in 2022, given much higher contract rates and still strong (albeit moderating) spot rates. Lessors of container ships are also on track for a banner year, locking in virtually all of their vessels on charters at historically high rates.

On Monday, shares of container line operator Zim (NYSE: ZIM) sank 10%. Zim’s share price is now back to where it started the year. Across the container sector, much of 2022’s gains have been lost.

Chart: FreightWaves SONAR (To learn more about FreightWaves SONAR, click here.)

Global Ship Lease (NYSE: GSL), one of the companies that rent container ships to liners, reported Monday that its Q1 2021 net income was up 1,571% year on year. It now has $1.67 billion in revenue locked in through charters. And yet, following Monday’s decline, GSL’s stock is down 7% year to date.

Crude tanker stocks

The price of crude oil sank 6% Monday on news that producer Saudi Aramco is cutting its prices.

Among crude tanker owners, share pricing of Tsakos Energy Navigation (NYSE: TNP) fell 16%, Nordic American Tankers (NYSE: NAT) 15%, Frontline (NYSE: FRO) and Teekay Tankers (NYSE: TNK) 13%, Euronav (NYSE: EURN) 12%, International Seaways (NYSE: INSW) 11%, and DHT (NYSE: DHT) 10%.

Crude tanker spot rates remain extremely low, particularly for larger vessel sizes.

Clarksons Platou Securities assessed Monday’s spot rate for modern very large crude carriers (VLCCs; tankers that carry 2 million barrels of crude) at just $8,500 per day — less than a third of the Clarksons’ estimated breakeven rate for a five-year-old VLCC of $33,000 per day.

Crude tanker stocks saw gains earlier this year despite rate weakness, driven by optimism on a future recovery. With Monday’s slide, however, most crude tanker names have given up much (and in some cases all) of their YTD gains. VLCC owner DHT is now down 3% YTD.

Product tanker stocks

The rate environment for tankers carrying petroleum products such as diesel, gasoline and jet fuel is completely different than for crude tankers. As buyers scramble for refined products, rates for product carriers are surging to multiples above breakeven. “Earnings upside from here is immense,” maintained Evercore ISI shipping analyst Jon Chappell.

Clarksons put spot rates for modern LR2 tankers — which are around half the size of VLCCs — at $65,000 per day as of Monday, over seven times VLCC earnings.

Yet some of the strongest spot rates of the past decade didn’t protect product tanker stocks on Monday. Shares of Ardmore Shipping (NYSE: ASC) plunged 15%, with Torm (NASDAQ: TRMD) falling 11% and Scorpio Tankers (NYSE: STNG) 10%.

YTD gains for product tanker equities remain very high: Scorpio is up 87% since the beginning of the year, Ardmore 77%.

To put that in perspective, the Dow Jones Transportation Average is down 10% YTD, the Dow Jones Industrial Average 11%, the S&P 500 16% and the Nasdaq Composite Index 22%.

LNG shipping shares

The Ukraine-Russia war has increased demand for seaborne volumes of liquefied natural gas (LNG). As Europe seeks to wean itself from Russian pipeline gas, it must replace lost pipeline volumes with seaborne imports. The promise of higher future European demand is helping new export liquefaction projects secure financing.

Even so, LNG shipping stocks dropped by double digits on Monday: Flex LNG (NYSE: FLNG) by 11% and GasLog Partners (NYSE: GLOP) by 10%.

Dry bulk stocks

Dry bulk spot shipping rates are rising. According to Clarksons, spot rates for Panamaxes (bulkers with capacity of 65,000-99,999 deadweight tons or DWT) were $28,600 per day as of Monday. Rates for Supramaxes (60,000-64,999 DWT) were $30,000 per day. Panamax and Supramax are at decade highs for this time of year. Rates for larger bulkers known as Capesizes (180,000 DWT) have lagged YTD but jumped 17% on Monday to $26,400 per day.

Despite rising spot rates, shares of Eagle Bulk (NASDAQ: EGLE) fell 13% on Monday, with Grindrod (NASDAQ: GRIN) down 11% and Globus Maritime (NASDAQ: GLBS) down 10%. Other dry bulk shares were down mid- to high single-digits.

Dry bulk shares are still up YTD: Golden Ocean (NASDAQ: GOGL) by 35%; Eagle, Grindrod and Genco (NYSE: GNK) by 29%; and Star Bulk (NYSE: SBLK) by 22%.

Click for more articles by Greg Miller 

$4.2B shipping ‘mega-merger’ would create ‘supersized tanker behemoth’

tanker shipping merger Euronav FrontlineThe biggest deal in tanker shipping history would merge Euronav and Frontline, but consolidation is no panacea.

tanker shipping merger Euronav Frontline

Analysts broke out the superlatives after a blockbuster plan to merge of Euronav and Frontline was announced Thursday.

Evercore ISI’s Jon Chappell called it a “mega-merger” that would create a “supersized tanker behemoth.” “A crude tanker powerhouse,” wrote Clarksons Platou Securities’ Frode Mørkedal. Stifel’s Ben Nolan hailed the rise of a “tanker super major,” Deutsche Bank’s Amit Mehrotra, a “tanker juggernaut.”

The stock-for-stock transaction would produce the world’s largest tanker player. It would own or operate 146 crude and product carriers and boast a market capitalization of $4.2 billion.

It would be the highest-value consolidation deal in the history of the tanker industry, and the largest in ocean shipping overall since Cosco’s acquisition of container line OOCL in 2018.

The combined entity would retain the Frontline (NYSE: FRO) name, but Euronav (NYSE: EURN) would hold more of the cards.

Euronav would own 59% and Euronav’s CEO Hugo De Stoop would take the helm. Euronav would get three of the seven seats. Hemen Holdings — controlled by shipping tycoon John Fredriksen, Frontline’s founder — would get two (the final two would be neutral).

Euronav’s shares rose 6.8% in triple average volume on the merger announcement. Frontline’s shares fell 7.7%.

World-leading market share

Clarksons estimated that the combined entity would control 5% of global tanker capacity. That includes 8.1% of the world’s VLCCs (very large crude carriers; tankers that carry 2 million barrels), 9.3% of Suezmaxes (crude tankers carrying 1 million barrels) and 4.9% of coated LR2 product tankers.

U.K.-based VesselsValue provided American Shipper with its latest data on the top tanker owners. The Euronav-Frontline combo would top the world rankings with 26.8 million deadweight tons (DWT) in owned capacity.

No other top-10 tanker owner is listed in the U.S. The other nine are either private or Asian-listed. In second is China’s Cosco Shipping Energy Transportation with 20.5 million DWT. Third is China VLCC (16.1 million DWT). In fourth is Greece’s Maran Tankers (15.2 million DWT) and in fifth is Saudi Arabia’s Bahri (13.9 million DWT).

Chart: VesselsValue, April 2022. Includes all crude and product tankers

Tanker market to remain highly fragmented

Container shipping is vastly more consolidated than tanker shipping. Analysts and consultants generally agree that container liner companies gained pricing power as a result of consolidation. Tanker owners have no pricing power — nor would the Euronav-Frontline entity.

“The spot tanker market is hugely competitive. It is hard to argue for any market power with 8% ownership of the [VLCC] fleet,” said Mørkedal.

The top 10 tanker players own about 27% of global capacity. In sharp contrast, the top 10 container liner groups own or operate 85% of global capacity, according to Alphaliner statistics.

Spot tanker rates are driven lower by smaller owners, not those at the top of the rankings, De Stoop said during Euronav’s Q3 2021 conference call. (At the time of that call in early November, Fredriksen had recently acquired a 9.8% stake in Euronav, prompting consolidation chatter that turned out to be correct.)

According to De Stoop, “We were on a panel with Frontline the other night and we both said that what needs to be considered a priority is [consolidating] the smaller players. Those are really the people that are hurting the market. Simply because they don’t have the capacity to gather the information that we do by being present in the market all of the time.

“We think the market will consolidate further. We would like to be a participant. And the priority would be to consolidate the smaller players.”

The proposed mega-merger of Euronav and Frontline — two larger owners that already have high information-gathering abilities — doesn’t do anything to solve the problem of the smaller players. Tanker shipping “will remain fragmented as this merger will not offer material consolidation given the litany of smaller private and public competitors,” said Chappell.

Positives of Euronav-Frontline merger

Nevertheless, analysts highlighted several positives from the proposed mega-deal.

“For tanker investors and for the general investor base globally, the potential combination would create a truly investible tanker company with a meaningful and liquid market cap,” affirmed Chappell. He believes the company “would effectively become a bellwether for not just tanker equities, but maritime transportation as a whole, due to its enhanced scale.”

According to Nolan, “While a combined market capitalization north of $4 billion is still not large, it does help out.” The consolidated entity “will likely have the best share liquidity in the tanker space.”

Mørkedal said that “a larger size should attract larger, long-only funds” and that “larger market capitalization and trading liquidity should improve the cost of equity. But probably more important is improved cost of debt.” Frontline gets loan margins of around 170 basis points over Libor, Euronav 220. “The combined company should likely be able to improve these numbers further.”

Yet despite such “bigger is better” advantages, tanker performance always comes back to how supply and demand affect rates. In tanker shipping — highly fragmented, exceptionally commoditized, heavily reliant on spot business — profits and losses are primarily driven by the vagaries of global market forces outside of management’s control.

“The most important factor, of course, still remains market rates,” said Nolan. 

Click for more articles by Greg Miller 

War and shipping stocks: Containers, dry bulk, product tankers up

shipping stocksSome shipping shares are rising because of war tailwinds. Others are rising despite war headwinds.

shipping stocks

The Russia-Ukraine war is the kind of geopolitics-altering event that should shake up trade flows for years to come, promising big repercussions for shipping shares.

A month into the conflict, American Shipper spoke with Randy Giveans, shipping analyst at Jefferies, about how the war is affecting — or not yet affecting — the stocks in different vessel segments.

There have been some big stock moves already, outperforming the broader stock market. But it’s still too early to see the full impact. “Part of the reason is that we’re in a stalemate,” said Giveans. “For questions like ‘What are the new trade routes going to look like?’ and ‘Will reduced flows be offset by ton-miles [longer distances]?’ it’s very hard to tell after just a month.”

Container shares

Sentiment headwinds are growing for the container sector, both related to the war and unrelated. Inflation accelerated by the war. Potential recession in Europe. Consumer confidence issues in the U.S. The possibility of future sanctions targeting China. A moderate decline in spot rates.

And yet, container shipping stocks continue to strengthen. Container stocks have risen despite the war, not because of it.

According to Giveans, container-ship lessors “just keep signing charters for higher rates, locking in cash flows for three, four, five years. They’re less exposed to near-term headlines.”

Ship lessor Danaos (NYSE: DAC) is up 11% since the start of the war a month ago and 37% year to date (YTD). Costamare (NYSE: CMRE) is up 23% month on month (m/m) and 35% YTD, Global Ship Lease (NYSE: GSL) 13% m/m and 24% YTD.

shipping shares
All charts: Koyfin

Container liner operators are more exposed to indirect fallout from the war, Giveans acknowledged. Even so, Matson (NYSE: MATX) is up 15% since the war began and 34% YTD. Shares of Zim (NYSE: ZIM) — based on adjusted closing prices that account for Tuesday’s dividend — are up 33% m/m and 51% YTD.

In Zim’s case, there have been company-specific drivers moving the stock up. “A lot has happened since the war that is very Zim specific,” said Giveans. “It reported earnings, very strong projections and a dividend that was well above what anyone expected.”

Liner stocks are also being buoyed by investor belief that “port congestion will be persistent,” Giveans added.

Dry bulk stocks

In the dry bulk sector, the war has the potential to shut in a large volume of agribulk exports from both Ukraine and Russia.

That volume may not be fully replaceable, potentially reducing demand for dry bulk carriers in the Panamax (65,000-99,999 deadweight ton or DTW) and Supramax (50,000-59,999 DWT) categories.

Europe’s need to replace Russian coal with coal from other sources such as Asia is a positive for larger Capesizes (180,000 DWT). But Capes separately face negative pressure from COVID lockdowns in China and losses in the Chinese housing market (Capes carry coal and iron ore used by China to produce steel).

Rates for Panamaxes and Supramaxes are up year on year, whereas Cape rates are down. Amid a mixed bag of indicators, several dry bulk stocks are up double digits. 

Genco Shipping & Trading (NYSE: GNK) is up 19% m/m and 45% YTD. Eagle Bulk (NASDAQ: EGLE) is up 15% m/m and 41% YTD. Star Bulk (NASDAQ: SBLK) is down 2% since the start of the war but still up 30% YTD.

shipping shares

“If you look at the dry bulk FFA [freight futures] curve over the last six weeks, it’s only going up for the rest of the year,” said Giveans. “When it comes to Russia-Ukraine, will all of the volume be replaced? I don’t know. But the new trade of coal going from Australia to Europe is extremely long-haul and positive for ton-miles.” (Demand is measured in ton-miles: volume multiplied by distance.)

“The balance sheets of Genco, Star Bulk and Eagle are extremely strong. All three also have extensive scrubber exposure — and not only are day rates great, but scrubber premiums are great too,” said Giveans.

Ships with exhaust-gas scrubbers can burn cheaper 3.5% sulfur fuel as opposed to 0.5% sulfur fuel. The war has pushed up oil prices and widened the spread between the two fuel types, increasing savings for shipowners with scrubbers.

Tanker shares

Tanker stock performance has been mixed over the past month, with several equities jumping initially after the invasion then given back gains.

Listed companies owning very large crude carriers (VLCCs, tankers that carry 2 million barrels of crude) have underperformed. 

Euronav (NYSE: EURN) is down 3% since the war began, although still up 13% YTD. DHT (NYSE: DHT) is down 3% m/m and up 5% YTD, with Frontline (NYSE: FRO) down 3% since the war began and up 17% YTD.

shipping shares

“You need to separate crude and products,” said Giveans. “On the crude side there has been no impact yet [from the war]. The rates yesterday [Wednesday] were the worst they’ve ever been for a non-scrubber, non-eco VLCC. There could be some dislocation, with more Russian crude to China and India and Western Europe importing more from the U.S., Latin America and the Middle East. But it will take time. I’m pretty optimistic about 2023, but the next few months could see some headwinds.”

Product tanker stocks have fared much better. 

Scorpio Tankers (NYSE: STNG) is up 26% since the war began and 56% YTD. Ardmore Shipping (NYSE: ASC) is up 6% m/m and 31% YTD. Oslo-listed Hafnia is up 13% m/m and 21% YTD.

“On the product side, the effect is more immediate [than for crude],” said Giveans. 

“You’re seeing more robust diesel flows to Western Europe [from farther afield, replacing] a lot that had been coming from Russia. Product tankers are certainly benefiting more and are being more positively disrupted than crude tankers, so they should be outperforming crude stocks from an equity perspective over the past month.”

Click for more articles by Greg Miller 

Why Russia-Ukraine war has not ignited crude tanker rates (yet)

crude tankers shippingCost of shipping crude oil remains cheap, but tanker rates could jump if the war doesn’t end by fall.

crude tankers shipping

Wars involving oil producers traditionally cause tanker rates to spike. A month into the Russia-Ukraine war, rates for most crude tankers remain abysmally low. Rates for product tanker rates are up but not exceptionally high.

“The immediate knee-jerk reaction was: Disruptions create strength in the market,” said Evercore ISI analyst Jon Chappell. “We saw that in 1991 and we saw that in 2003, so the thinking was: Here we have another geopolitical event that’s going to lead to [oil] storage and the substitution effect [buyers finding news sources].”

“But it’s dangerous following the old model,” Chappell told American Shipper. “Every event is different.”

Crude tankers fail to recover

Crude tanker owners have been hemorrhaging cash since mid-2020 and continue to do so.

Clarksons Platou Securities put Wednesday’s spot rate for very large crude carriers (VLCCs; tankers carrying 2 million barrels) built in 2015 or later at just $3,800 per day. That’s an eighth of Clarkson’s estimated breakeven rate for a 5-year-old VLCC of $32,000 per day.

VLCC spot rates are down 29% from a month ago, when the war began.

Suezmaxes (capacity: 1 million barrels) built in 2015 or later are at $16,600 per day, double their average spot rates a month ago. However, that’s still well below Clarkson’s estimate of a $24,000-per-day breakeven rate for a 5-year-old Suezmax.

According to Chappell, “The only [crude tanker] markets that really ripped were those directly impacted: the Baltic, Black Sea and Med.” These short-haul trades are served by Aframaxes (capacity: 750,000 barrels) or smaller tankers.

Evercore ISI’s Jon Chappell (Photo: Marine Money)

Chappell said that long-haul routes plied by larger-sized crude tankers did see a brief “sentiment-driven spike” in the immediate aftermath of the invasion, but they’re now “back to fundamentals.”

“You haven’t seen any more Saudi or UAE cargoes going to Europe yet, and you haven’t seen a big shift in West African crude. You have seen a little bit of an uptick in U.S. Gulf exports but not enough to change the supply-demand balance.”

Chappell gave three reasons why rates for larger tankers remain so low despite historically high geopolitical risk.

First, ship capacity was “clearly excessive, ” given depressed spot rate levels when the war began. Second, “you’re in the spring, when there’s really not that typical rush to lock in inventories.”

Third, “oil prices just went completely parabolic, and at prices like that in a massively backwardated market, there’s no economic incentive to store oil and there’s no economic incentive to try to build inventory going into the summer.” (In a backwardated market, the current price is higher than the futures price.)

Chappell does see potential for much higher crude tanker rates. “But I think that for that to happen, we need to be in this conflict at these current levels or worse by the time we start looking into the winter, when Europe becomes a bit more desperate to make sure they have inventories,” he said.

“If we’re still in this conflict in September, the price becomes a lot more irrelevant and you’ve got to make sure you have supply.”

Product tankers finally break even

Tankers carrying petroleum products are seeing a different effect from the war.  

Clarksons put Wednesday’s spot rate for LR2 product tankers (capacity: 80,000-119,999 deadweight tons or DWT) built in 2015 or later at $30,800 per day. That’s up 344% since the war began although down 16% week on week.

The estimated breakeven rate for a 5-year-old LR2 is $23,000 per day. With the exception of the past month, LR2s have consistently lost money since mid-2020.

Rates for LR1s (capacity: 55,000-79,999 DWT) built in 2015 or later were at $25,600 per day, up 189% from a month ago but down 13% week on week, with the breakeven for a 5-year-old LR1 at $18,000 per day. The past month marks the first time LR1s have been consistently in the black since mid-2020.

“With products, the diesel arb is playing a huge role,” said Chappell. “It’s so wide right now that transport costs can push up substantially and the trader still makes a huge profit on the diesel.” (The arb or arbitrage is the difference between what a commodity can be bought for in one place and sold for in another.)

“[Diesel] is also more of a year-round market. You have the driving season in Europe coming up and obviously truck demand is still incredibly strong with consumer demand and supply chain issues. I think diesel is something that can be more sustainable. It’s clearly being represented in some of the long-haul trades [from Singapore, the Middle East and India to Europe] with the LR2s and to a lesser extent, the LR1s.”

Tanker demand is measured in ton-miles: volume multiplied by distance. The replacement of Russian products with diesel sourced by Europe from Asia is dramatically increasing the distance traveled.

“As long as the arb stays open and Russia’s not exporting directly to Europe, that’s a big ton-mile driver to the larger product-tanker sector and I think that one has more legs until there’s a resolution,” said Chappell.

Click for more articles by Greg Miller