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Why GasLog, Frontline, and Nordic American Tankers Stocks All Popped Today

By Rich Smith - Jun 8, 2020 at 10:30PM

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Lower oil price could spark more demand for oil, and oil storage ... and oil tankers.

What happened

Oil prices slumped on Monday, with American standard West Texas Intermediate crude oil and international benchmark Brent crude both closing the day down about 3.4% at $38.18 and $40.85 a barrel, respectively.  

Oil tanker stocks, on the other hand -- and liquefied natural gas (LNG) shippers, for that matter -- headed the other way. By close of trading, crude oil shippers Frontline (FRO 2.58%) and Nordic American Tankers (NAT 2.67%) ended up 10.2% and 14%, respectively. LNG carrier GasLog (NYSE: GLOG) closed the day 17.2% higher.

Oil tanker foredeck

Image source: Getty Images.

So what

Which kind of makes sense. After all, the cheaper oil gets, the more demand for oil should rise, right? That's just Economics 101 -- and it should be good news for companies operating tankers to carry the stuff from producer to consumer (or refiner).

Moreover, in weeks past we've seen an increasing trend toward oil traders that use tankers as floating oil storage tanks in which oil can be parked during times of low prices, or low demand, or both, so as to be released back onto the market when conditions improve. This, too, could be a reason for why cheaper oil might seem to benefit oil tanker stocks -- and LNG tanker stocks as well, if one assumes that demand for one form of energy will roughly track demand for another.

Now what

That being said, I'm not 100% convinced that today's rally is for real, or that it will be long-lasting, and I'll tell you why. If you turn from what is happening in the world of oil in general to what's happening in the world of oil transport in particular, the news looks significantly less good.

According to most recent data from Lloyd's, the last five reported days have seen uninterrupted slides in the value of both the Baltic Clean (BCTI) and Dirty (BDTI) Tanker Indices. In just one week, the BCTI lost 14% of its value (hitting 491 on June 4) while the BDTI lost 15% (falling to 605).  

Admittedly, this data is a few days old. Perhaps there's fresher data out there somewhere that institutional investors are reacting to today. But if it's available, I for one am not seeing it. As for the data that is readily accessible, it looks far from good for tanker demand, or tanker profitability ... or for the short-term profits of companies like Frontline, Nordic American, and GasLog.

Rich Smith 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

Frontline Ltd. Stock Quote
Frontline Ltd.
FRO
$11.14 (2.58%) $0.28
Nordic American Tankers Limited Stock Quote
Nordic American Tankers Limited
NAT
$2.69 (2.67%) $0.07

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