* Higher oil prices to spur demand, shipments ...
* ... or hit demand, shipments
* Exposure to spot market is good ...
* ... or not so good
By Krishna N Das and Vaishnavi Bala
BANGALORE, March 9 Shares of companies that own
oil tankers have perked up as crude oil prices have jumped to
2-1/2-year highs on fears that unrest in North Africa and the
Middle East could disrupt supplies.
Trading sources say Libya's oil trade -- the country is
Africa's No.3 producer -- has virtually been paralysed as banks
decline to clear payments.
The S&P 1500 Oil & Gas Storage & Transportation index
, which rose by a fifth last year, has already
gained 17 percent so far this year. Shares in Frontline Ltd
, the world's No.1 independent oil tanker company, are up
13 percent in the last 7 weeks, after losing 7 percent in 2010.
To reflect a tighter oil market, BofA Merrill Lynch has
raised its second-quarter forecast for Brent crude to
$122 a barrel, from $86 previously.
Some analysts say higher oil prices will help offset an
over-supply of tankers -- as buyers secure supplies against
further price hikes -- but others reckon geopolitical issues
cannot compensate for weak fundamentals.
Too many tankers and a weak global economy have in recent
years squeezed the pricing power of tanker firms such as
Frontline, Teekay , Crude Carriers , Nordic
American Tanker Shipping and 2nd-ranked independent
Overseas Shipholding .
Michael Webber at Wells Fargo Securities said tanker stocks'
multi-year lows and a gradually improving demand-supply scenario
make a 'buy' case.
"We've actually seen a lot of (tanker) supply discipline in
the past 6-9 months, so the long-term supply side is getting
better. I'm optimistic and bullish that it's more of a
longer-term call," he said, adding his preferred stocks are
Overseas Shipholding, Frontline, Crude Carriers and Nordic
Webber noted that volatility related to Egypt's recent
popular uprising could also be key to determining tankers' daily
"The names we'd favour would be firms that have significant
spot market exposure that would benefit from an improving rate
environment," said Douglas Mavrinac, analyst at Jefferies.
"We're negative on tankers, lower than consensus," said RS
Platou Markets analyst Dag Kilen, predicting VLCCs (Very Large
Crude Carriers) would earn $23,000 a day on average this year
and $19,000 next year.
VLCCs, which are among the biggest tankers and can ship up
to 2 million barrels of oil, commanded average day rates of
close to $200,000 as recently as 2008.
Taking a contrarian stance, Kilen said civil unrest in the
Middle East and North Africa could actually hit demand for oil
-- and shipments.
"Our main concern earlier was the supply of vessels," he
said. "The turmoil has increased the risk for demand destruction
... shipping is a volume game and news of output shortfall is
thereby considered a negative."
CEO Rex Tillerson said on Wednesday that Exxon Mobil
was not seeing any demand destruction as a result of higher oil
Kilen was also negative on Frontline, given the company's
high dividend expectations, "as it has both missing funding for
capex and refinancing needs through 2012".
High spot market exposure makes Kilen negative on Overseas
Shipholding and Denmark's Torm A/S .
Cantor Fitzgerald's Natasha Boyden, a 5-star StarMine marine
sector analyst, said she would avoid General Maritime ,
and Overseas Shipholding, because of that exposure.
"Our outlook remains fairly bearish in the short term (6-12
months) due to (tanker) supply concerns ..." she added.
(Reporting by Krishna N Das and Vaishnavi Bala, Editing by Ian