What Does JPMorgan Think Of Oil Tankers?

JP Morgan’s Noah R. Parquette expects crude tanker fleet efficiency to increase as a result of improved balance between global oil production and consumption in 2016 and 2017.

“Combined with the orderbook, we look for crude tanker rates to fall as a result of this effective supply increase. High crude stocks have also pulled tanker demand forward, so increasing global oil demand won’t translate directly to tanker demand,” analyst Noah Parquette wrote.

A healthier order book, demand dynamics and global diesel glut point to a bullish stance for product tankers. While the concerns relating to little differentiation between crude and product tankers are valid, the two sectors have diverged in the past and “will do so again,” Parquette commented.

A change in the valuation methodology involving a shift away from the use of historical median values to estimating normalized NAV using depreciated new build prices has resulted in reduced NAVs across the board. The analyst added that this suggests crude tanker stocks are more fairly valued than generally thought.

Teekay Tankers

JP Morgan upgraded the rating for Teekay Tankers Ltd. TNK from Underweight to Neutral. Parquette believes that there is lower downside risk for the stock, given the sharp sell off since the beginning of the year.

“We’re expecting a good quarter ($0.41 operating EPS vs. $0.31 in Q4), with a dividend of $0.16 per share, assuming a potential vessel sales of its older tonnage,” the analyst added.