The Drewry Crude Tanker Equity Index has been trending upwards since the beginning of 2024 and registered a gain of 7.9% YTD as firm winter demand coupled with disturbances in the Red Sea are driving the stock prices of crude tanker companies. In contrast, S&P 500 inched up only 2.1% YTD. Similarly, the Drewry Product Tanker Equity Index surged 14.7% YTD in the past few weeks, outperforming the S&P 500, which gained 2.1% over the same period.
Teekay Tanker is the best performer with a stock price surge of 19.7% YTD followed by DHT Holdings (+12.3%) and Tsakos Energy Navigation (10.0%) – a company with a diversified fleet and nearly 76% exposure to the time charter market. Frontline moved up 8.9% and Nordic American Tankers inched up 5.2% whereas Euronav’s stock largely remained flat and recorded a nominal gain of 0.2% YTD. Increased tension in the Middle East also pushed up stock prices of product carriers, and accordingly, the stock prices of Ardmore Shipping surged 15.5% YTD and Scorpio Tankers jumped 13.7% over the same period.
Euronav announced the acquisition of CMB.TECH for a purchase price of USD 1.15bn in cash. CMB.TECH is a diversified cleantech maritime entity that builds, owns, operates and designs large marine and industrial applications that run on dual-fuel diesel-hydrogen and diesel-ammonia engines and monofuel hydrogen engines. The acquisition fits into Euronav’s renewed strategy of diversification, decarbonization and accelerated optimisation of the company’s current crude oil tanker fleet. The company will finance the transaction from the cash proceeds of the sale of part of the VLCC fleet to Frontline and Euronav’s own cash. The company expects to complete the transaction by February 2024.
In 4Q23, spot TCE rates of crude tankers and product tankers dropped 27.3% YoY and 32.9% YoY on average, respectively, as rates in 4Q22 were exceptionally high. However, market disruptions caused by the conflict in the Red Sea are driving up the spot rates of oil tankers but this trend is unlikely to continue for long. The year 2023 was strong for the oil tanker market despite concerns about acroeconomic headwinds, slower-than-expected postCovid recovery in China and curtailed output by OPEC+. Strong growth in global oil demand and shifts in trade patterns played key roles in the demand and earnings of oil tankers.
In 2024, we expect TCE revenue and profits of crude tanker companies to soften slightly because of moderation in spot rates across vessel classes due to slower growth in demand compared to 2023. However, a contraction in tonnage, an increase in global oil demand and continued export of Russian crude on long-haul routes to Asia Pacific will keep supporting the tonne-mile demand for crude tankers. TCE revenue and profits of product tanker companies are also estimated to decline marginally as we expect spot rates to soften, but favourable supply-demand dynamics will prevent any major decline in the revenue and profit of these companies. Additionally, the congestion in the Panama Canal and disturbances in the Red Sea will also support the demand for product carriers.
Tanker shipping companies are expected to remain profitable and would prefer to further strengthen their balance sheet and reward shareholders with regular quarterly cash dividends. However, we can see selective newbuild ordering or acquisition of on-the-water vessels by few players, but companies would prefer to avoid any substantial capex commitments either through a newbuilding programme or en-bloc acquisition of second-hand assets when asset prices are at record highs. These companies will continue to invest in carbon capture-ready scrubbers and other performance-enhancing technologies aimed at achieving their decarbonisation goals.
Source: Drewry