Pretty much every factor imaginable is making life unpleasant for tanker owners these days. Let us count the ways:

Too little oil demand
The International Energy Agency pared back its global oil demand forecast this week by an additional million barrels per day. That takes expected demand levels 2.8% below those of 2008, in a drop comparable to the contraction seen in the early 1980s.

The explanation for lower oil demand is clear enough. The recession means fewer trips to Best Buy, which means fewer FedEx (NYSE:FDX) deliveries of inventory to that Best Buy, and so forth. Hence the barrels are just piling up. In the U.S., we saw inventories build by 5.67 million barrels last week. That takes us to the highest level of stockpiles in about 19 years.

Too little oil supply
It's not as though the market's being inundated with oil, either. While OPEC has been cautious about cutting back too hard, compliance has run fairly high, with analyst estimates pointing to north of 80% adherence to quotas. Combine these self-imposed cuts with those soon to result from both reduced investment and natural decline rates, and oil supply could soon find it hard to rebound to pre-recession levels.

Operators like General Maritime (NYSE:GMR) and Teekay Tankers want to see steady or growing oil supply just as much as they desire fervent demand. Unlike upstream players like Apache (NYSE:APA), oil volumes are much more important than oil prices.

Too many tankers
Speaking of volume, the growing global fleet is another headwind for the industry. When thinking about the fact that nearly 1,000 oil tankers are on order, the word unbridled comes to mind. What else could you expect, though, following a situation in 2004 when OSG (NYSE:OSG) was talking about the industry operating at nearly 100% utilization?

Of course, there are several mitigating factors here, as I've discussed in past coverage of Frontline (NYSE:FRO) and Nordic American Tanker (NYSE:NAT). Everything from single-hulled vessel phase-outs to port congestion to vessel conversions somewhat cushions the new-build body blow. Still, all of that isn't enough, and Frontline foresees both rising vessel scrapping and a huge wave of order cancellations to correct the imbalance. Prodding along the latter process is, of course ...

Too little credit
You certainly can't pay for a shiny new Suezmax tanker if you don't have the financing available. Tanker owners aren't just going to skip out on shipyard orders because they want to, but because they have to. These are some of the most leveraged balance sheets in the business world, after all, and borrowing capacity is just going to get that much more strained as asset values fall.

So, what's a Fool to do?
With tanker rates hitting decade lows, things look pretty bad for many public companies in this space. Of course, the analysts are now dishing out downgrades like Dodger Dogs on Opening Day. Tsakos Energy Navigation (NYSE:TNP), for one, caught an ignominious "underweight" rating from JP Morgan yesterday.

You'll have to make up your own mind regarding any particular tanker outfit's merits. To get you started, though, here are a few questions to ask of any potential investment here:

  • What is the net debt level, and is it manageable? Nordic American makes answering this one easy: Zero, and yes! Other firms' finances will take hours to scrutinize.
  • What's the level of spot market exposure? Teekay Tankers, for one, has charter coverage for 62% of its operating days this year, which it claims should support a decent, though diminished, dividend.
  • Is the dividend sustainable? In most cases, the answer here is likely to be a resounding no, so don't take those eye-popping yields at face value, Fool.

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Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter or RSS. The Motley Fool has a disclosure policy.