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.