The Tanker Market: A Wall Street perspective

By Mark MacLean, Morgan Stanley

We view the energy shipping stocks as expensive at current levels as overcapacity in the second half of 2005 could temper tanker rates and asset values. The stocks are currently trading at high multiples on lofty net asset values and midcycle earnings.

Near-term fundamentals remain strong. The typical seasonal trade in the tankers has been exaggerated by an estimated 1.9 million barrels per day (mbpd) year-overyear increase in crude oil demand (4Q04/4Q03), supply disruptions in the GoM to the tune of 0.4 mbpd, and the start of the International Maritime Organization’s (IMO) mandatory phased scrapping of single hull tankers on April 5, 2005. Over the next six months, we estimate that deliveries will only slightly outpace scrapping by 2.0 million dwt. Potential delays at the Turkish Straits also point to improving near-term fundamentals and higher tanker rates, barring a significant downturn in the economy and crude oil demand.

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