Tanker Companies Sink Despite The Oil Rally

Tanker Sinking

While oil continues to rally… tanker rates are sinking.

In September, the situation has become so ugly that many owners are struggling to break-even.

This is a great example of how related commodity plays don’t always track the commodity people expect them to. Company earnings can go in a different direction than their underlying asset exposure.

The problem for tankers right now is that far too many new ships have been built, fuelled by a past boom in oil prices. Thus even moderately higher oil demand wouldn’t be enough to prop up rates given vessel over-supply is substantial. As a result, many ships right now are worth less than their cargo.

US tanker shares such as Frontline (FRO) and Teekay (TK) have been somewhat cushioned from the situation due to long-term contracts and good management. Yet they failed to partake in the recent stock market rally and are down from where they traded in June.

Read more at Hellenic Shipping News.

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