The production cuts of at least 10m barrels per day hammered out by the Opec+ group on Thursday are likely to be less than impressive to investors when compared to demand destruction — and could spur further gains in shares of public tanker owners.
That was the take on Friday by Jefferies lead shipping analyst Randy Giveans as he assessed what might happen when New York stocks resume trading on Monday after the long Easter weekend.
"It seems like the Opec+ cuts are going to be underwhelming, so tankers should continue to strengthen next week as chartering activity picks back up after a slow week leading up to to the Opec+ meeting," Giveans told TradeWinds.
While it is already the biggest monthly reduction ever, and some hope agreement from other countries will push the cut to 20m bpd, sceptics suspect the measure will pale in comparison to the demand destruction wrought by the virus and the shutdown of world economies.
It's that sort of sentiment that keeps Giveans high on tankers after a week in which nine of 10 stocks under Jefferies' coverage logged double-digit gains, with an average climb of 12%.
Shipping logged broader wins as well, with 28 of the 30 stocks covered by Giveans gaining ground — also at a 12% average.
The Houston-based analyst had predicted the rally.
"We've been following a down-up, down-up pattern," Giveans said, noting that ship shares had dropped an average 13.6% in the previous week.
Shipping's gains came amid the best week for the US stock market since 1938, although key indexes remain more than 20% below February's record highs.
Volatility has been the rule and, since shipping shares tend to be even more volatile than the broader market, a wild ride could still be ahead.
The tanker profits were not the week's biggest as containerships took the honour with 21%.
"This was primarily driven by Danaos Corp, which had a 34% rebound as management reiterated its Ebitda guidance and fears of contract cancellations were alleviated," Giveans said.
LPG shares climbed 15%, dry bulk rose 10% and LNG stocks increased 8%.
Danaos led the week's gainers on the factors Giveans mentioned, followed by LPG player Navios Gas Holdings on 29%.
The industry's biggest product tanker owner, Scorpio Tankers, and dry bulk player Star Bulk Carriers were both among the week's top 10 winners at 17% and 14%, respectively.
The only stocks to lose ground on the week were Scorpio Bulkers (1%) and Golar LNG (3%).
