Meaningful data is hard to find, but in all reality, there are some really good short-term opportunities here.
With the first price war concluded between Russia and OPEC, we are seeing that the cutbacks inevitably were not enough.
The timeline was as follows:
2.4.2020 - Trump speaks to a "deal that he has brokered between Russia and OPEC for cuts of between 10 - 15mm b/pd" West Texas Intermediate crude futures surged 24.67% to settle at $25.32 per barrel, for its largest single-day percentage gain in history. International benchmark Brent crude jumped 17.8%, or $4.40, to trade at $29.14 per barrel.
12.4.2020 - OPEC+ and Russia agree to terms that conditionally pull out 9.7mm b/pd beginning May 2020. It is said the cuts would be eased to 8mm b/pd between July and December, 2020. Then they would be eased again to 6mm b/pd between January 2021 and April 2022.
What we have is an imbalance to the surplus side, even as Brazil, Europe and the US step in to make further cuts to the oil markets. Currently forecasts, the most optimistic forecasts, are pointing to a reduction of demand leading into the summer of around 18.5mm b/pd. This means that we will be dealing with an overflow roughly to the tune of 10mm b/pd, as oil countries struggle to balance a pull-back without blowback direct to revenue.
Additionally, Saudi Arabia is flooding cheap oil into the Asian marketplace, while holding steady course in Europe. "State-owned oil company Saudi Aramco has pledged to boost output to 12.3 million barrels a day in April as it cut the May official selling price of its flagship Arab Light crude to Asian customers by US$4.20 a barrel from the previous month, exceeding estimates for a reduction of US$3.63. That was even after it signed a deal with other producers to cut global output by around 10 per cent to try and support prices."
This will further engage a 2nd price war on oil, probably bringing oil into the low teens. All this glut will offer up big opportunities for tanker companies, as they VLCCs are simply a limited commodity.
1.4.2020: Oil tanker rates keep climbing, with benchmark Middle East-to-China rates rising another 2.8% overnight to WS 212.71, equating to daily earnings of 241K, according to Baltic Exchange data.
11 additional ships in March and April for a period ranging between 38 days and 80 days have already locked in revenue for 94MM (avg: 137/day for 61 days). For the remaining part of the calendar year (Jul - Dec) that would be an additional 282mm in profit. EPS can possibly jump up to $.70 - $.77 for the remaining quarters, which just by pulling the current P/E (ttm) of 14.38 puts us somewhere between $10 - $11 (36% - 51%).
Please also look at the basket of companies that are included (FRO, STNG, TNK). Additional plays on EURN, NNA, INSW to lay-off some risk.
@stockbroker2k, whats your thoughts with ship storage prices falling the last 2 days?
stockbroker2k
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@curtiscoll, I have been looking for tanker rate changes Curtis, but not yet seen too much drift. I'd love to see that data, if you can share.
I do believe that perhaps it could be intertwined with the President's comments on the Iranian issue, however, if so, this is a small ripple. Last week we were running a surplus of crude stock around 19mm. This week, we are around 15mm. I do believe this is just a moment in time, because the glut is only increasing. Unless some production facilities go to absolute dead-stop, we will soon be leveraging railroad cars for storage in the short-term.
muglore
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Great find. You were really ahead of the curve on this one! The max exodus from crude today didn't help either.