Tanker Companies take a dive

I haven't talked much about tanker companies. They had not had the problems of the dry bulk carriers, or even the containerized carriers. That has now changed.

I think everyone has been surprised to see the dramatic reduction in the demand for oil, causing the price to fall to a 5 year level despite cuts from OPEC.

There had been some talk that tanker shipping companies could weather the storm by using their ships as storage tanks until the market improved. But I think this will be a long long downturn, and apparently so do others.

The investment bank Jefferies has slashed their target prices on tanker stocks.
They say the current charter prices are at cash-flow break even, and it is to get worse. They don't say when they expect an upturn, but they expect it to be bad through 2009.

Many economists in the U.S. are saying things will get better in the middle of 2009. I highly doubt this.

From Lloyd's List

Jefferies slashes tanker firms share price targets

Tony Gray - Monday 22 December 2008
TANKER rates falling to barely break-even levels and companies sliding heavily into the red is the bleak scenario painted for 2009 by Jefferies, the US investment bank.

Jefferies said the latest Opec production cuts, shipyard deliveries, and the release of tankers from storage duties, will combine to depress spot freight rates and earnings, and as a result the bank has reduced 12-month share price targets for most of the quoted companies it covers.

The bank believes Opec’s pledged production cuts will translate to about an 8%-9% contraction in crude oil tanker demand in 2009, while the fleet is likely to expand by 14%-15%, leading to a “significantly oversupplied” freight market.

“In fact, we believe crude oil tanker fleet utilisation could decline 22%-24% in 2009, which could cause crude oil tanker charter rates to decline significantly from current levels.”

The bank has reduced its estimates of next year’s average daily crude tanker spot charter rates to $30,000 for very large crude carriers, $25,000 for suezmaxes, and $20,000 for aframaxes, “essentially just above cash flow break-even levels”.

Two months ago, Jefferies expected the average 2009 rates to be $50,000, $40,000, and $35,000, respectively.
According to Jefferies’ latest research, the two biggest losers will be Teekay Corp and Overseas Shipholding Group.