With a pronouncement that "the tanker trade is effectively over" on 3 May 2020, Evercore ISI's Jonathan Chappell was one of the first researchers to call an end to a superheated tanker bull market.

Chappell predicted trouble ahead with an end to floating-storage trade and inventory destocking, and the analyst has now admitted that it has been worse than he thought.

And while he is now using words like "recovery" and "good news" to describe how things might play out over the next 30 months, he is far from bullish now.

"Though we believe the worst of the downturn is nearing an end, expectations should be tempered regarding the magnitude of a rate/earnings recovery before 2023," he said.

That sobering assessment was perhaps the bottom line of a new 16-page market outlook released on the one-year anniversary of his earlier call. It was headlined: "Tankers: One year later — are we there yet? Just a little further."

Chappell does see things getting better, but partly because they can hardly get worse than current rates that are in many cases below both financial and operating break-evens, with time-charter equivalent (TCE) rates being quoted in negative numbers.

"Directionally, our analysis was accurate, though the magnitude and duration of the resulting downturn has exceeded any realistic bearish expectation," Chappell wrote on Monday.

Belgian VLCC owner Euronav and chief executive Hugo De Stoop are Evercore ISI's top pick among US-listed tanker names. Photo: G Morty Ortega/Marine Money

While the veteran analyst, who has been covering shipping since 2001, does see an "inflection point" in rates coming in a quarter or two, that doesn't mean Chappell is ready to label tanker stocks the place to be for his clients.

"So one year later, do we recommend a full 180-degree turn and a full return to tanker equity ownership? Not yet," he wrote.

"Green shoots certainly exist, but we believe investors need to remain selective and focus on capital structures and valuation discrepancies, as the upside beta will take care of itself, but the downside of a prolonged delay to a rebound could result in varying levels of equity value pain."

On a company level, Chappell maintained buy ratings on Euronav – his top pick – along with Torm and Teekay Tankers. He counseled investors to sell shares of Frontline and Nordic American Tankers, which in his estimation are trading well above net asset value (NAV).

The earnings season for tankers is to take off in earnest later on Tuesday when major VLCC player DHT Holdings reports results after market close in New York.

Chappell has actually raised his expectation for DHT to a profit of two cents per share from a previous estimate of a penny to the good. The owner has been greatly helped by a decision to fix out tankers on high-paying charters during the record-setting rates climate of first-half 2020.

However, he expects VLCCs in the first quarter have earned only $9,000 per day on the spot market, down from his previous estimate of $14,000.

DHT was the only tanker owner Chappell saw profiting for full-year 2021. Not anymore. He now projects DHT to fall to a $0.05 loss, and has increased estimated losses for the six of the other tanker owners under his coverage: Euronav, Frontline, NAT, Scorpio Tankers, Teekay Tankers and Torm.

Only Irish product tanker owner Ardmore Shipping gets an estimate upgrade, and that to an $0.82 loss from a $0.84 deficit.

The good news? Chappell does see five of the eight flipping to a profit for full 2022. They are DHT, Euronav, Frontline, Scorpio and Torm.

In the macro picture, Evercore does credit all the improving dynamics that are likely to be cited by tanker owners on their earnings calls in the next few weeks. These include expanded production from Opec+ in this year's second half, a drain on inventories to more normalised levels and relatively restrained tonnage capacity.

"However, when compared to the average estimated demand destruction of 8.99m bpd in 2020, the forecasted 2021-22 rebound would only bring global demand back to pre-Covid levels," Chappell wrote.

In the shorter term, the he said jury is still out on whether second-half 2021 improvements "will determine whether this year proves to be a transition to a much stronger market in 2022 and beyond or if it’s just a complete washout".