What happened
Oil tanker company Frontline (FRO -4.87%) had a forgettable 2020 with shares falling 41.5%, according to data provided by S&P Global Market Intelligence, as oil markets fell apart. 2021 could be better, but there's still a lot of uncertainty facing the oil tanker industry.
So what
If you remember way back to the beginning of the pandemic, oil prices actually went negative for a short period of time because oil demand collapsed quickly when COVID-19 shut the economy down. The drop in demand had the effect of reducing the need for oil tankers to transport oil.
Image source: Getty Images.
The good news was that oil trading caused a jump in demand for tankers on the spot market, which caused high demand and revenue (see below) in mid-2020. But the fundamentals for the industry are still weak, and management expects revenue per day to be down over 50% for all vessel sizes between the second and fourth quarters of 2020.
FRO Revenue (Quarterly) data by YCharts
The windfall from traders needing to store oil in tankers didn't last long, and the reality is that tanker demand is dwindling on the global market, which is why we're seeing the stock sink.
Now what
Oil demand is down versus a year ago, but long term, we should see the rise of electric vehicles becoming the biggest threat to the tanker business. These vessels rely on demand for oil to make money; if demand goes down, so do their financial results. That's going to keep me out of tanker stocks, and I don't see this being a great oil stock for investors long term.
