Oil Tankers Going Nowhere (OSG, TK, GMR, FRO, NAT, PBR)

Day rates for crude oil supertankers, VLCCs, peaked in 2009 at around $100,000/day. Today, if you want to ship 2 million barrels of oil from the Middle East to Korea, you’d have to pay just $4,700/day.  The collapsing rates are partly the result of a frenzy of new shipbuilding that started in 2008 when demand for oil was driving prices higher and higher. Another explanation is that demand for floating storage is way down, putting those ships back on the market and adding to the glut. Shipping companies Overseas Shipholding Group Inc. (NYSE: OSG), Teekay Corp. (NYSE: TK), General Maritime Corp. (NYSE: GMR), Frontline Ltd. (NYSE: FRO), and Nordic American Tanker Shipping (NYSE: NAT) are feeling the pinch, but some of the shippers’ shares trade near 52-week highs and some trade near 52-week lows.

The tanker fleet is predicted to grow by nearly 13% in 2011, according to an estimate by Morgan Stanley cited at Bloomberg News.  There are currently about 526 VLCCs in the world’s fleet. The tonnage currently being built is equal to 27% of the existing tonnage and is the largest increase ever.

And the news won’t get better any time soon. Supertanker rates are expected to remain unprofitable for at least two years. Predictions of lower global GDP growth in 2011 could dampen international trade even more. One broker noted that rates for container ships have fallen for four straight weeks.

Frontline, the world’s largest supertanker owner, hit a new 52-week high in early May and has lost about 29% since then. The shares are still up more than 20% in past 12 months.

The story at Teekay is somewhat different. The shares posted a new 52-week high last week. The company has shed assets to some of its subsidiaries and announced that it would re-start its $200 million share buyback plan. The company also signed a contract with Brazil’s Petroleo Brasileiro SA (NYSE:PBR), or Petrobras, for a floating production storage and offloading vessel starting in the second quarter of 2012.

An analyst from Deutsche Bank has lowered his EPS loss estimate for Teekay from -$0.45 to -$0.75 for the third quarter. EPS loss estimates for General Maritime and Overseas Shipholding also widened. The analyst expects General Maritime to post an EPS loss of -$0.24 and Overseas Shipholding to post a whopping EPS loss of -$1.26, compared with an earlier expectation of -$0.43.

A Frontline executive noted that at current supertanker rates the company is better off anchoring ships and sending the crews fishing. That could be a long fishing trip.

Paul Ausick