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Straights of Hormuz and Oil Tankers
It should be clear by now that as tensions escalate in the Middle East, Iran's only recourse would be to disrupt the flow of oil via the Straights of Hormuz - through which 20% of global oil and 35% of the world's seaborne oil traverses. Obviously, oil prices are likely to rise and an investor may play one of the many available ETFs to capture this premium. For those that can stomach risk in search of outsized returns, look no further than the oil tanker sector.
In my mind, oil tankers would clearly benefit if they were required to reroute their tankers... not only will oil tankers have to be chartered for longer trips, the charter rates would rise as a result of a draw down of available tankers. Adding further pressure to the supply side, oil tankers are typically used to hoard and store oil in anticipation of rising oil prices.
The oil tanker industry is not for everyone. Frontline, the largest public oil tanker company, is teetering on the edge of bankruptcy. The entire industry has been hammered by macro events and a supply glut of available tankers. Given that this conflict with Iran is not something to be resolved in the immediate future, I would expect rising charter rates to buoy oil tanker companies until the supply glut has been cleared. Another wildcard, if Frontline indeed collapses, who will fill the vacuum?
One name that I am watching:
Nordic American Tanker (NYSE:NAT)
- 0.70 price to book ratio
- 19% debt to equity ratio, far below industry average (http://ycharts.com/rankings/industries/Shipping/debt_equity_ratio)
- 9% yield