Are There Clear Seas Ahead for This Oil Tanker Company?
Teekay Tankers CEO Bruce Chan recently announced his intention to resign on June 20, 2014.
While it is unclear who will succeed Mr. Chan as CEO, the company's stock rallied significantly after the news. The market reaction to the event is good news for Teekay Tanker shareholders, who have seen the oil tanker sector go through some rough seas in one of the greatest bull markets in recent memory.
Sector headwinds
The oil tanker sector, which includes shippers like Frontline Ltd. and Nordic American Tanker Limited , has faced stiff headwinds as a variety of negative factors reduce demand.
Because of the shale revolution, the United States is now producing more crude oil than it is importing.
According to the Energy Information Administration, U.S. crude oil production recently averaged 7.7 million barrels per day versus 7.6 million barrels per day imported.
The total net petroleum imports were the lowest since 1991.
The trend is unlikely to reverse anytime soon. The Energy Information Administration projects that U.S crude production will be around 9.6 million barrels per day in 2019 from around 7.7 million today.
With American demand decreasing due to higher vehicle fuel standards and increasing domestic production, the oil tanker sector's fortunes increasingly depend on China, which has a population of 1.3 billion people and a motor vehicle per thousand people ratio of only 58.
The Chinese economy, unfortunately, has recently slowed as bad loans come due and credit fears rise.
The distance between the Middle East, where a significant percentage of oil is exported, and China is also significantly shorter than the distance between the Middle East and United States. The shorter distance causes oil tankers to see less demand even though they are transporting the same amount of crude oil.
The bottom line
Long term, the shale revolution has yet to spread to other nations. Europe may be a half a decade away, and China is probably a decade away. When those countries can tap into their own resources, oil tankers will see less demand.
Short term, I think the tanker stocks are a levered bet on the Chinese economy. If the Chinese economy starts recovering or the Chinese government adds more stimulus, oil tanker stocks are likely to rally on sentiment alone. China is now the world's largest auto market. Almost 22 million vehicles were sold in 2013, and most analysts believe that the Chinese vehicle market will see double-digit growth this year.
The health of China's economy is the key metric in terms of where the future demand for oil tanker shippers will come from. With the Shanghai composite still near multi-year lows, it remains to be seen whether the Chinese economy will make a comeback any time soon.
The retirement of CEO Bruce Chan won't change the fortunes of Teekay Tankers in the short term. Given that it is unclear who the new CEO will be, the event is not really a cause for optimism. Teekay Tanker's stock, however, has had positive momentum recently and could continue to do so in a bull market.
What's the best way to play energy?
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!
The article Are There Clear Seas Ahead for This Oil Tanker Company? originally appeared on Fool.com.
Jay Yao has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
