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Tanker Companies Still Fighting an Uphill Battle

Despite a rebound in oil prices over the last few years, tanker stocks have been terrible performers on the stock market. Frontline (NYSE: FRO  ) , Nordic American Tankers (NYSE: NAT  ) , and Teekay Tankers (NYSE: TNK  ) are all down at least 47% in the last five years and Frontline has fallen into the abyss with an 85% drop.

FRO Total Return Price Chart

FRO Total Return Price data by YCharts

But this isn't just a matter of companies falling out of favor with the market. Tankers are in much less demand as U.S. oil production has increased and their financial performance only seems to be getting worse.

Losing money hand over fist
You can see below that Frontline, Nordic American Tankers, and Teekay have all seen losses for over two years and conditions don't look to be improving quickly.

FRO Net Income (TTM) Chart

FRO Net Income (TTM) data by YCharts

U.S. energy imports are down to 34% of consumption, off from 60.3% in 2005 and 40% just last year. That reduces the demand for tankers and the only way to replace it is hope that demand from India and China replaces the lost demand from the U.S. That's a stretch given the amount of oil available close to those countries.

Pipelines replace tankers worldwide
It may be surprising to find out that Russia is actually the world's largest oil producer and it's a direct neighbor to China, who is a major oil importer. Russia recently signed a deal that will send 200,000 barrels of oil per day to China's Sinopec Group. This is part of Russia's goal to export more than 1 million barrels of oil per day to China. There's also an abundance of natural gas coming over the boarder, boosted by the recent completion of the Myanmar-China pipeline.  

Then there's the fact that the Middle East is simply a shorter trip to China and India than the U.S. and you have lower demand for tanker services. An already oversupplied market is only going to get worse over the next few years.

Foolish bottom line
Frontline's John Fredricksen may have had it right in September when he suggested competitors should shut down capacity. The problem is that no one is going to take him up on the offer.

Long term, I think the trends are simply working against the tanker business and financial results will continue to suffer. We may see a rebound in rates here and there but demand is slowly drying up and that's why this is an industry to avoid in 2014.

A better energy play for 2014
There are still plenty of companies generating value in energy, specifically one company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 03, 2014, at 9:58 PM, zobtraffic wrote:

    I often wonder if the writers of various stock web sites ever return to the scene of the crime after they have bashed a stock or industry incorrectly to say"sorry. got it wrong". I currently own vlccf (up 38%), esea (up29%) and tnk (up 42%) all of which are shipping stocks. By looking at the technical of the drys etf and watching the obv and moving averages a child could tell the upside is greater than the downside within this industry. Excuse me, I have to go comment on bank of Greece, bank of Ireland and Alpha Bank of Greece bashers from Motley Fool.

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Related Tickers

9/30/2016 4:06 PM
FRO $7.17 Up +0.14 +1.99%
Frontline CAPS Rating: **
NAT $10.11 Up +0.17 +1.71%
Nordic American Ta… CAPS Rating: ***
TNK $2.53 Up +0.03 +1.20%
Teekay Tankers CAPS Rating: ***