Oil prices are on the rocks today, plummeting to the lowest prices on record. And yet, oil tanker stocks are performing admirably in early-afternoon trading Monday.
As of 1 p.m. EDT, shares of crude oil shipper Teekay Corporation (NYSE:TK) remain up 6.4% (after being up twice that earlier in the day). Scorpio Tankers (NYSE: STNG) stock is up 7%, and Nordic American Tanker (NYSE:NAT) is holding on to a 6.3% gain -- both also coming down a bit off of their earlier highs of the morning.
Well, think about it logically. What happens when the price of something -- anything, not just oil -- gets cheaper? What do people tend to do?
Answer: They buy more of it.
And if the thing in question, oil in this case, is located somewhere other than where the people who want to buy it live, then someone needs to ship it from Point A to Point B.
Result: Greater demand for oil begets greater demand for oil shipping services, and business improves for the tanker operators.
Also, in light of the current global oil glut, there's a huge demand for oil producers looking for places to stash the oil they've produced, in hopes of being able to eventually sell it off when oil prices improve. Oil tankers make a fine place to store oil, obviously -- they're basically mobile storage units.
And this adds even more demand to the already surging demand for oil transport services.
There are multiple reasons for investors to be getting interested in oil tanker operators already. And when you consider that none of these three stocks was profitable heading into today (says S&P Global Market Intelligence), and that the multiple trends now working in their favor raise hopes that they could become profitable, it only makes sense that investors would be clambering aboard these oil tanker stocks.