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Why Oil Tanker Stocks Jumped Today

By Travis Hoium – Apr 21, 2020 at 3:33PM

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Shares were up by double digits today, but the party may not last.

What happened 

Shares of tanker stocks jumped across the board early Tuesday as investors speculated that tanker rates would rise as short-term oil prices went negative. The most notable moves were by Nordic American Tankers (NAT 1.32%), Tsakos Energy Navigation (TNP 0.42%), Scorpio Tankers (NYSE: STNG), and both Teekay Tankers (TNK -0.99%) and Teekay Corporation (TK -1.70%). But by 2:40 p.m. EDT today, shares had settled to more modest gains. 

Company Largest Change Change at 2:40 p.m. EDT
Nordic American Tankers 20.8% 6%
Tsakos Energy Navigation 19.2% 3.3%
Scorpio Tankers 14.6% 1.6%
Teekay Tankers 10.9% 0.4%
Teekay Corporation 24.2% 5.6%

Data source: Google Finance. 

So what

Today's positive move for oil tanker stocks came as oil prices started the day trading as low as negative $40 per barrel, the second day in a row that prices were negative. It's the last day of trading for the May 2020 contract for oil, so traders who didn't want to take delivery of oil were panic selling into negative territory. 

Oil tanker sailing on choppy waters.

Image source: Getty Images.

The strange price dynamic means an investor would be paid as much as $40 per barrel of oil just to take it off someone's hands in May. They could then sell that barrel of oil for around $19 per barrel in July if they sold a futures contract. The only challenge would be finding a place to store the oil for two months, which is where oil tankers come in

Reuters recently reported that 160 million barrels of oil are already parked on oil tankers, double from two weeks ago, as traders started storing cheap oil for future sale. This will not only ensure work for oil tankers, but rates could also spike in the short term as more traders try to find storage. In late March, rates had doubled in the Middle East and China to about $180,000 per day, which could lead to a windfall for tanker stocks. 

The problem is that eventually, producers will reduce oil production and more countries might find their domestic supplies sufficient to fulfill demand. That could leave a gaping hole in oil tanker demand later in the year. Profits may be up now, but it's not a good long-term business model to keep holding oil offshore, and the windfall tankers may be seeing won't last. 

Now what

I wouldn't jump into tanker stocks today, and energy stocks in general are going to be very volatile for the foreseeable future. What I would be worried about in the tanking business overall is the plunge in demand we can see on the horizon. If global oil consumption is down in 2020, there will be less need to move oil around the world, which will crush day rates and profitability. Traders may have been buying tanker stocks today, but I would be running in the other direction given what's likely coming. 

Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Nordic American Tankers Limited Stock Quote
Nordic American Tankers Limited
NAT
$3.08 (1.32%) $0.04
Teekay Tankers Ltd. Stock Quote
Teekay Tankers Ltd.
TNK
$27.97 (-0.99%) $0.28
Tsakos Energy Navigation Limited Stock Quote
Tsakos Energy Navigation Limited
TNP
$16.56 (0.42%) $0.07
Teekay Corporation Stock Quote
Teekay Corporation
TK
$3.46 (-1.70%) $0.06

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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