Oil tanker stocks represent an important part of the shipping industry. They are also highly related to the energy industry due to the nature of their cargo. But does that mean you should invest in them?
Oil itself is a risky investment right now. Energy Expert David Fessler has recently explained why. Not only has the coronavirus affected the markets broadly, but the world is also dealing with a Russia-Saudi Arabia price war. That’s why he recommended getting out of oil right now.
On the other hand, my colleague Rob Otman has another take. He thinks a play on oil stocks that pay solid dividends like ConocoPhillips (NYSE: COP) or something similar may have strong long-term value.
What’s the Matter with Oil Stocks?
While cheap oil can be good for consumers who drive a lot, nobody’s driving too much right now. And cheap oil can be devastating for energy investors.
But here’s the thing to understand about the current oil environment. There are downward pressures from both the supply side and the demand side.
On the supply side, you have the oil price war. Saudi Arabia is dumping oil on a market that is already oversupplied with the stuff. That’s creating downward pressure on oil prices.
Now combine that with the downward pressure of a drop in demand due to COVID-19 and you can understand why oil is suddenly trading at prices in the low- to mid-20s, down from $60 a barrel just a few weeks ago.
But investing in oil tanker stocks could potentially be a better way to play oil in the current market environment. Technically, this isn’t a play on the oil industry, but on the shipping industry. And thankfully, we still need energy shipped even when we’re on lockdown.
About the Industry
What is an oil tanker? An oil tanker, or a petroleum tanker, is simply a ship that is designed for the marine transport of oil or oil products.
There are two types of oil tankers: crude tankers and product tankers.
You probably hear about various types of crude oil often, i.e. “light, sweet crude.” Crude oil is the black, tarrish, unrefined stuff energy companies extract from the ground that eventually becomes refined oil and oil products.
The purpose of crude tankers is to transport this unrefined black gooey stuff from its extraction sites to the oil refineries where it will be processed. This shipping can move oil all over the globe, and it does.
On the other hand, the (usually) smaller product tankers do not deal with crude oil. Rather, they transport refined oil products from the processing refineries to locations where they will be distributed to consumer markets. Similarly, this shipping can move products all over the world, and it does.
Types of Tankers and Their Movements
Different types of oil tankers come in different sizes. Examples of these include…
- Inland or coastal tankers which carry a few thousand metric tons of deadweight (DWT)
- Ultra large crude carriers (ULCCs) which carry about 550,000 DWT
Oil tankers move around 2 billion metric tons of oil each year. They are not quite as efficient as pipelines, but they are still efficient.
It costs about $0.02 cents per gallon to transport oil using tankers. If only the gasoline I put in my car cost that little.
There are also specialized kinds of oil tankers, like the replenishment oilers used by the Navy. These special tankers can fuel a ship while it’s still in transit.
Other types of specialized oil tankers include ore-bulk-oil carriers and permanently moored floating storage units.
Once in a while, oil tankers are involved in heavily publicized oil spill accidents. These are bad for stock prices.
List of Oil Tanker Stocks
There are a variety of oil tanker stocks at low prices right now. They include…
| Name | Exchange | Ticker | Price | Year-to-date return* |
| Overseas Shipholding Group | NYSE | OSG | $2.16 | -6.90% |
| Double Hull Tankers | NYSE | DHT | $6.52 | -22.38% |
| DHT Holdings | NYSE | DHT | $6.52 | -22.38% |
| Nordic American Tanker | NYSE | NAT | $3.75 | -22.55% |
| Euronav | NYSE | EURN | $9.50 | -25.95% |
| International Seaways | NYSE | INSW | $21.93 | -26.46% |
| Teekay Tankers | NYSE | TNK | $17.80 | -27.73% |
| Frontline | NYSE | FRO | $8.42 | -34.93% |
| Tsakos Energy Navigation | NYSE | TNP | $2.65 | -43.86% |
| Scorpio Tankers | NYSE | STNG | $15.84 | -60.09% |
*as of April 2, 2020
Unfortunately, like many stocks in this current market environment, oil tanker stocks have not performed well year-to-date, .
However, there is, perhaps, a bright spot to note. According to Zacks Research, the year-to-date return on the shipping industry as a whole is currently about -47%. Yet the average year-to-date return of these ten oil tanker stocks is only -29%. So within the shipping industry itself, oil tanker stocks have done reasonably well – or at least reasonably less badly.
Oil Tanker Rates Are Going Up
Here’s some more good news for the oil tanker industry: their rates are going up. This is being driven by the oversupply of oil in the marketplace. More companies need more places to store their oil. And they are turning to tankers.
As a result, tanker companies are able to drive up their rates. In fact, oil tanker rates have recently doubled. VLCC tankers raised their rates from about $90,000 per day last Wednesday to about $180,000 per day this past Monday.
This rise in prices could be very good news for oil tanker profits. Which could lead to significant increases in stock prices in the near future.
The Bottom Line for Oil Tanker Stocks
There is still a great deal of uncertainty in the stock market. And in addition to the coronavirus pandemic, much of this risk has to do with the Russia-Saudi Arabia oil war. So energy stocks continue to be a risky play.
But the rising rates of oil tankers may be enough to boost oil shipping industry stocks. On the other hand, this boost may not turn out to be sustainable. If you’re looking for more great investment ideas to help manage your money through these uncertain times, we recommend signing up for our free Investment U e-letter below.
Meanwhile, oil tanker stocks remain worth watching in the short term as the current international crises continue to unfold, but you may want to stick to safer plays in things like reliable dividend stocks or even gold stocks.