US-listed tanker owners are taking the gains while they can get them as investors continue to pile into the stocks on short-term to medium-term dynamics tied to oil prices and the floating storage contango curve.
The tanker group soared to one of its strongest days of 2020 on Monday, with Teekay Tankers up 21%, Nordic American Tankers rising 19%, Diamond S Shipping gaining 16%, Frontline climbing 13% and Tsakos Energy Navigation adding 11%. All have significant presence in crude tankers.
But the fun was not limited to the dirty crowd, as clean product tanker owners Scorpio Tankers and Ardmore Shipping appreciated 18% and 7%, respectively.
US oil futures plunged below zero for the first time on Monday, ending at negative $37.63 per barrel of West Texas Intermediate (WTI) crude. The essentially means sellers must pay buyers to take the product.
The dynamic signals the short-term scarcity of storage as land-based facilities have filled up, pushing excess supply onto not only crude tankers but product carriers.
Tankers have been shipping's most consistent gainers among listed owners in recent weeks despite the effects of the coronavirus outbreak.
"I would expect tankers to continue their upward momentum, especially as more headlines come out about onshore storage filling while the contango steepens," said Jefferies lead shipping analyst Randy Giveans in an interview before Monday's trading started.
The gains came on a day when the Dow Jones Industrial Average fell nearly 600 points (2.4%), also reacting largely to the fall in oil prices, which are seen as an indication of overall demand in the world economy.
Tankers' gains were not replicated in the rest of shipping equities either.
Dry bulk shares were mostly down, with largest player Star Bulk Carriers diving 12%, Genco Shiping & Trading 7% and Eagle Bulk Shipping 3%. Scorpio Bulkers managed a 6% gain, while Diana Shipping added 2%.
LNG owners, however, continued recent gains after climbing an average of 23% last week.
Golar LNG Partners soared 33% while GasLog moved 30%, leading a pack of names in green numbers.
When does the party end?
Fearnley Securities said: "One would think a $0 per barrel price point would result in production shut-ins, but there are typically costs associated with shutting down as well.
"Storage tanks at Cushing are now projected to be full in early May. Liquidity in the paper market is obviously another important factor, with financial/physical holders in the end incentivised to cover the last shorts or find space in a tank."
Brent crude fell 9% as well, although this is seaborne crude, it pointed out, and the six-month contango continues to be around $11 per barrel.
"Although we have seen a flurry of period deals with floating options, we note that only 15-20 VLCCs are currently doing floating storage," analysts Espen Landmark Fjermestad, Peder Nicolai Jarlsby and Ulrik Mannhart said.
"Nevertheless, this does not make the capacity issue less acute. China still has the largest potential to absorb excess production, and runs have already improved from 10.5m barrels per day (bpd) in February to 11.8m bpd in March."
VLCC rates have averaged $125,000 per day from 1 March.
"The million dollar question is obviously when this party ends," Fearnley added.
"Tankers are in the short term inversely linked to oil demand as a weaker demand base will likely require additional floating storage cases."
"Moreover, the floating storage will largely mirror the convexity in the oil price cure, and hence the lower the prompt price, the wider the curve (normally). In effect, the sector could be viewed as a hedge towards further macro uncertainty. And by the looks of it, this could last well into 2021."
