The turn of the year brought new challenges, including the impacts of “price caps” on crude oil and products, but most observers see it as healthy with a low order book, although more are now being reported. A breather for the shares of the tanker maritime transport sector.
The VLCC sector has been exceptionally volatile – look at Middle Eastern Gulf TCEs east of around $100,000 a day in late March, rivaling late-2022 highs now at less than half that for ships equipped with scrubbers, giving investors pause. Stock markets in general, which provide the backdrop for trading in transportation shares, which comprise a minuscule fraction of total stock capitalization, have also seen wild swings.
Investors were closely watching the first quarter 2023 earnings release of New York-based tanker owner International Seaways (NYSE – INSW) last week, and the reported results provided good “pace,” which means that they exceeded the predictions of tanker transportation analysts. The stock, which was trading at over $50 a share at the end of March, which was no fluke when the VLCCs were at that $100,000 level, has pulled back in recent weeks, especially after OPEC+ announced production cuts, with prices below $40 per share. level.
Equity analysts like INSW, which has been strategic with its accessories and has also returned cash to shareholders through its dividend mechanisms. Its fleet is distributed among multiple segments of the tanker market.
BTIG analyst Greg Lewis, a big fan of INSW, told investors: “While we remain constructive long-term on oil tankers due to favorable supply-side dynamics and maintain our Buy rating due to strong INSW balance sheet and the ability to return cash to shareholders (total Q1 dividends were $1.62, representing a dividend yield of ~4% in Q1 alone). We lowered our price target, due to our expectation of continued rate weakness in the near term.”
Offering the view of “fares limping through the summer months,” Lewis said, “INSW has pegged approximately ~46% of its Q2 revenue days at ~$44,000, which is on par with ~44 000 earned across the fleet in the first quarter, which points to another quarter of strong cash flows.”
Stifel analyst Ben Nolan was looking for similar rate dynamics; he wrote to clients: “We expect the next quarter to deliver significantly higher profits, with about a third of the fleet being insured at better rates than our estimates for the second quarter.”
At Jefferies, Omar Nokta took a positive view, with a weather eye on geopolitics, telling clients: “This is the third sizeable payout in a row after $1.00 per share in 3Q22 and $1.88 per share in 4Q22. . We remain bullish on the company’s prospects, although we see risks to earnings potential in the coming months due to scheduled OPEC cuts.”
Changing oil flows, always a feature of the market, could also benefit ISNW. BTIG’s Mr. Lewis pointed to INSW’s US Gulf igniter business, which would continue to benefit from growth in US crude oil exports (currently around 4.8 million barrels per day, 20% more than in the same period in 2022). Looking at INSW’s recent results, he pointed to a healthy EBITDA of $5 million (similar to cash flow) generated from such a reduction in first quarter results.
Investors may pursue a course other than transacting in individual shares. Breakwave Advisors, the same team behind the successful BDRY investment vehicle for those seeking dry bulk, recently launched a new instrument, the BWET Exchange Traded Fund (ETF). The ETFs, which are listed on the New York Stock Exchange, reflect a grouping of futures contracts, in their respective sectors, that extend to six months. As contracts are settled (cash), positions are rolled over to the next expiration.
The ETF’s price is highly specific to the outlook for the tanker market on particular routes, tied to the values that traders assign to tanker futures contracts. This is in contrast to equity markets, which are influenced by a host of macro and exogenous factors that go well beyond oil market dynamics: think the Federal Reserve, jobs reports, and the woes of regional banks, among others. Initially, the BWET instrument will be comprised of components linked primarily to VLCC trades, with a rebalancing scheduled for December.
Source: Sea Trade