Shares of US-listed product tanker owners jumped up in early trading on Monday amid heated speculation over potential benefits from the shutdown of the Colonial Pipeline in the US.
Irish product tanker owner Ardmore Shipping was up more than 6% in morning trading in New York, while Danish owner Torm climbed more than 4% and Monaco-based Scorpio Tankers added 3%.
Momentum slowed slightly in afternoon, with Torm and Ardmore both closing with 5% gains and Scorpio edging up 2%.
But veteran equity analyst Jonathan Chappell of Evercore ISI told clients it's just too soon to tell whether the knee-jerk movements are leading to a longer-term boon for the stocks, or to very little at all.
The key is how long the pipeline will be shuttered – and if it's just for a few days, as appears quite possible, the tanker owners may be quickly handing back any gains won on the weekend's speculation.
"Product tanker equities are trading exactly as expected when you spend the weekend reading headlines about traders aggressively booking tankers for European cargoes into the US, especially with three weeks to go until the start of the summer driving season, inventories near or below 5-year averages, and the broader population chomping at the bit to get out of Dodge after a year-plus of lockdowns," Chappell told clients.
Besides the gains by Ardmore, Torm and Scorpio, Chappell noted that US-flag player Kirby Corp had climbed more than 3% on the prospect of Jones Act cargoes to the affected US east coast and southeast. Jones Act tanker owner Overseas Shipholding Group rose more than 2%.
Both US-flag players also slowed later in the day, with OSG up 1% and Kirby down a fraction.
"This market is clearly in a shoot-first mode," Chappell said.
A prolonged shutdown of the pipeline could mean that a surge in product tanker rates – and of equity prices – is just getting started, Evercore said.
"If there is still no line-of-sight on a full reopening by the end of this week, we would expect this chartering panic to accelerate as no trader would want to enter another weekend, one week closer to summer, short on product or [arbitrage] opportunity," Chappell wrote.
This could effectively provide product tanker owners with a "bridge" to what is expected to be an improved second half of the year based on overall demand recovery.
A middle case lies in a shutdown of five to 10 days, the products market is likely to "reset," but at a higher base heading into the second half.
If the disruptions lasts only days, and Chappell said "there is a very good chance" they could, then tanker owners could be brought down quickly by elevated inventories "that ultimately further delay a true fundamental recovery".
This story has been amended to reflect the closing prices of Ardmore Shipping, Scorpio Tankers, Torm, Kirby and OSG.
