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Refined Products Squeeze Signals Product Tanker Upside (11 Sept) “While crude oil prices have risen to $90 per barrel, refinery margins remain strong, particularly in Europe, where complex refineries buying Brent earn profits of more than $21 per barrel, according to Refinitiv data. This is significantly higher than the previous year's average of $14 per barrel. Such high margins indicate very constrained refining capacity as well as strong underlying oil demand, allowing refineries to not only pass on rising crude costs to consumers, but also benefit from them. According to a recent Bloomberg article titled "Oil Chiefs Sound Alarm on Refining Woes," a lack of excess refining capacity is causing a highly constrained refined products market. This is primarily due to low inventories and reduced refining capacity that have persisted since the COVID-19 pandemic. Given that last winter was relatively mild, any colder-than-expected weather this year could further strain an already tight market. Product tankers stand to benefit significantly in such a scenario, as their primary role is to transport cargoes to the highest-paying regions. Excess supplies are expected from China, the Middle East, and the United States. As a result, not only should seaborne trade increase in volume, but average trading distances may also improve significantly. Import demand from Europe could be the catalyst for significantly higher freight rates. Product tanker equities remained relatively stable last week, with a modest 6% year-to-date increase. The sector is currently trading at a mere 4x P/E based on earnings that are expected to continue for the foreseeable future. Many leading equities are also trading at a significant discount to NAV, typically around 20%. Given the backdrop of a severely constrained refined products market, we see this sector's equities as a highly appealing investment opportunity at this time.” by Clarkson's cc: $STNG $ASC $TRMD $INSW $HAFNI etc |
