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)

Always DYODD!

More reads: http://www.businessweek.com/news/2012-01-17/oil-tanker-rates-gain-most-in-two-months-amid-hormuz-tensions.html

http://www.bloomberg.com/quote/BIDY:IND

Scottie

 

Community Talk

Re: Straights of Hormuz and Oil Tankers

wondering if it was capitulation... cant get any worse than negative rates right?  Also I think the Greek "deal" was leaked that day?  

Paragon Shipping (PRGN) was one that I've been watching for years.  Price/Book is at just 7%... so the contrarian might believe that the bottom is in.

Re: Straights of Hormuz and Oil Tankers

Everything in the markets is about sentiment.Numbers add up to nothing.

Re: Straights of Hormuz and Oil Tankers

Dry Bulk Shipping doing some very interesting things lately.  The Baltic Dry Index has been CRUSHED YTD with rates falling over 60% (from 1680 to 650)... To further confirm the shipping apocolypse, zerohedge reports on Feb 6th that Glencore secured a NEGATIVE RATE for their charter (http://www.zerohedge.com/news/shipping-rates-go-negative)... and what happens the very same day? Dry Bulkers EXPLODE!!!  This sort of contrarian action is mind-boggling to say the least.  Capitulation?

Re: Straights of Hormuz and Oil Tankers

Not sure about the accuracy  scottie but it looks like NAT has about 170 million in debt .I know  you have correctly established that the 19% debt to equity ratio is below industry average but... this industry is also riddled with  boom and bust.  They seem to have about 11 million in cash and barring any disasters should do well in the scenario you present.Another plus is  they have a low share structure for a big company .If cash ever was an immediate problem ,they could always dilute shares to clear debt. For those with some good capital behind them ,this seems to be a good stock for solid appreciation in the next 6 months. We will see.

Re: Straights of Hormuz and Oil Tankers

http://www.reuters.com/article/2012/01/09/us-factbox-mideast-oil-gas-shipping-risk-idUSTRE8080VJ20120109

"Around two thirds of Saudi crude exports goes to Asia, so pumping it west across the desert and then shipping it east means tankers would also have to sail through the pirate-infested Bab el-Mandab Strait and Gulf of Aden on a voyage that is about 1,200 miles and five days longer."

http://www.rasmala.com/equity_report/NSCSA_fair_seas_navigator.pdf

"Potential positive catalysts

Potential catalysts include higher shipping rates as a result of key route disruptions and a soonerthan-expected recovery in global oil demand to contest an oversupply in the tanker market.Higher shipping rates as a result of key route disruptions. Approximately 2.5% of the world’s seaborne oil passes through the Suez Canal, or 1.1m barrels per day. Disruptions to key shipping routes, particularly in the Suez Canal, is negative in the sense that vessels have to be rerouted through more dangerous routes, but tanker operators may benefit through higher shipping rates. A disruption to the Suez Canal and diversion through the Indian Ocean would mean longer voyage times for ships. Particularly for ships from the Gulf to the US, this route would add an estimated additional 25-30 days and for ships from the Gulf to Europe, an estimated additional 15-20 days. Additional days mean longer ton miles and higher utilisation rates, which could lead to a reduction in current tanker market overcapacity and improved tanker rates. Over the longer term, the VLCC market is most likely to benefit from a closure as VLCCs are most commonly used for longer routes due to size efficiency. Another factor that could increase rates as a result of a disruption is higher storage of liquid cargo due to fears of regional instability and hence less shipping capacity."