Market Overview

Wells Fargo: OPEC's Production Increase Will Benefit Tanker Stocks

Wells Fargo: OPEC's Production Increase Will Benefit Tanker Stocks

The tanker group as a whole is "uniquely positioned" to take advantage of a likely increase in oil production and potentially significant IMO 2020 tailwinds, according to Wells Fargo.

The Analyst

Wells Fargo's Michael Webber upgraded the following stocks

  • DHT Holdings Inc (NYSE: DHT) from Market Perform to Outperform, price target lifted from $5 to $7.
  • Frontline Ltd (NYSE: FRO) from Market Perform to Outperform, price target lifted from $5.30 to $7.
  • Teekay Tankers Ltd. (NYSE: TNK) from Market Perform to Outperform, price target lifted from $1.50 to $2.

The Thesis

OPEC and non-OPEC members will meet in Vienna this week with a possible outcome being incremental production increases of close to one million barrels per day, Webber said in a note. While the uptick in production may just make up for lost supply from Venezuela and Iran, it would nevertheless be an "incremental positive" for overall long-haul tanker ton-miles.

Meanwhile, new fuel regulations as part of IMO 2020 implies global merchant fleets will need to start adjusting to new fuel standards at the latest by the middle of 2019, the analyst said. While global bunker providers need to start the process earlier, it's important to note the January 1, 2020 deadline is the cut-off date for new fuel regulations, not a starting point.

As such, an increase in trading inefficiencies/frictions should be a positive for product tanker ton-miles, especially from storage opportunities and longer ton-miles via LSFO (sulphur fuel oil) from the U.S. Gulf coast.

Price Action

At time of publication:

  • Shares of DHT Holdings were trading higher by 8 percent at $4.42;
  • Shares of Frontline were higher by 7 percent at $5.92; and
  • Shares of Teekay Tankers were higher by 8 percent at $1.10.

Related Links:

Tanker Stocks In Focus At Morgan Stanley

Is $100 Oil Imminent? This Pro Says Geopolitical Events Could Make It Happen

Latest Ratings for DHT

Apr 2019UpgradesIn-LineOutperform
Jan 2019DowngradesOutperformMarket Perform
Nov 2018MaintainsOverweightOverweight

View More Analyst Ratings for DHT
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