The Baltic Exchange's index of clean tanker rates surged 45% this month thanks to a combination of seasonal and one-off factors, according to Stifel analyst Ben Nolan.
Beyond those factors, the rate rise indicates that clean tanker supply and demand is "tightly balanced and there is not a high degree of structural oversupply in the market."
Nolan says the strength in in rates has a read through for the two major publicly listed players in the space, Ardmore Shipping and Scorpio Tankers.
Anthony Gurnee-led Ardmore, which pays a floating dividend, may be able to hit a $0.23 per share payout in the first quarter. Its previous three dividend payouts ranged from $0.11 per share to $0.16 per share as medium-range (MR) tanker rates remained moribund for much of the year.
Meanwhile, the Robert Bugbee-led Scorpio may see shares get a boost as investors get more confident that it will be able to hit its fixed dividend target of $0.11 per share in the first quarter.
Refinery restarts and outages
Nolan says the rates are getting some strength after four major Middle East refineries come back online after scheduled maintenance during the fourth quarter. That should increase cargo activity for long-range (LR) tankers out of the Middle East. LR tankers are also being employed in floating storage off Singapore, further tightening capacity.
But in the Western Hemisphere, rates have risen on outages at coastal refineries in Mexico and Venezuela, requiring both countries to import more from the US. Weather delays along the Mexican coast have led to as many as 14 vessels waiting to discharge.
Nolan also notes that high inventories of gasoline and gasoil are starting to be winnowed down. That is resulting in more arbitrage trading opportunities.
