Deutsche Bank (DB) analyst Amit Mehrotra believes owners and shareholders are poised to benefit from the booming tanker market to the tune of billions of dollars.

He said investors could reap the rewards of a "blockbuster" cash windfall after VLCC rates hit more than $300,000 per day on Friday following the missile attack on an Iranian tanker, the 160,000-dwt Sabiti (built 1999), off Saudi Arabia.

Tanker stocks were already higher following demand rises and the effects of scrubber economics, Mehrotra said.

Scorpio Tankers and Euronav shares have jumped 86% and 57% since the start of the year, he added.

Now specific geopolitical events have taken daily earnings to new levels.

US sanctions on China’s state-owned shipping company Cosco have removed 7% of VLCC capacity from the market, DB said.

And US sanctions on Venezuela have effectively blacklisted tankers that have traded there over the last year.

Rates of more than $300,000 per day compare to DB's breakeven estimate of only $27,000 per day.

This implies surplus cash flow of about $100m for just one VLCC, Mehrotra said.

Euronav has more than 40 VLCCs.

Can it last?

"To be sure, $300,000-plus rates are likely unsustainable for a prolonged period of time, but it is worth noting the significant cash flow windfalls in the current rate environment," Mehrotra said.

"For example, assuming these rates can hold for just three months and applied to Euronav's entire VLCC fleet, we estimate Euronav can generate over $1bn in surplus cash flow available to equity holders, ie over-and-above debt service and repayment."

This is more than 50% of its current equity market value.

He also described the owner's fortress-like balance sheet — less than 40% loan-to-value -— as giving it even more optionality to use cash in increasingly shareholder-friendly ways.

"Dividends are most likely, in our view, given shares now represent much less of a discount to net asset value than prior to the recent rally, when the company used cash flows for share repurchase," Mehrotra added.

DB has a buy rating on the stock.

Mehrotra also said Scorpio Tankers offers more exposure to IMO 2020 demand drivers, albeit with more risk given higher (but manageable) debt levels.

Values rising

VesselsValue said on Monday that VLCCs of all ages were rising in value.

A brand new vessel is now worth $98.31m, up 2.1% from 1 October, while a five-year-old tanker has seen a 3.4% growth to $73.86m.

The rise increases in line with the age of the vessel, with a 20-year-old VLCC now assessed at $19.24m, up 6.5% in two weeks.