Tanker Rates Are Rising, And Stocks Could Follow

Tanker stocks have ridden the wave of surging long-haul crude oil levels in recent weeks. A new report by Morgan Stanley analyst Fotis Giannakoulis discussed the most recent tanker data and Morgan Stanley’s top tanker plays.

The Numbers

VLCC spot rates in the Middle East skyrocketed 37 percent week-over-week (W/W) to $70kpd last week, while Suezmax rates in West Africa also climbed 23 percent.

Related Link: Crude Oil Giving Back Gains For The Week

“Middle East tanker demand is expected to remain very strong over the next few months as production is ramping up again with Saudi exports seasonally increasing while Iraq aims to export record volume out of Barsa with the October preliminary schedule indicting exports rising to 3.68mbpd from 3.02mbpd in September, which if realized it would beat a previous monthly record of 3.064mbpd set in July,” Giannakoulis explained.

Tanker Stocks React

As a whole, tanker stocks climbed 8 percent last week in reaction to the rate increase. According to Giannakoulis, market sentiment on the VLCC tanker stocks should continue to improve throughout the rest of the year as demand rises. The increasing flow of crude from the Middle East to the United States and from West Africa to Asia could drive rate estimates even higher than Morgan Stanley’s base case forecast of about $50kpd throughout the second half of 2015.

Stock Picks

Morgan Stanley names Euronav NV Ordinary Shares EURN and DHT Holdings Inc DHT as its top two taker stock picks based on their high spot exposure, strong dividends and attractive valuations.

In addition, Giannakoulis is watching Tsakos Energy Navigation Ltd. TNP as a possible value play depending on its October dividend decision.

Disclosure: The author holds no position in the stocks mentioned.