An indicator that has a first-degree (direct) influence on tanker rates is China’s crude oil import volume. When import volume rises, more tankers will be in use, which pushes up shipping rates. Conversely, lower import volume means an increased number of idled ships, which leads to increased competition. Increased competition will pressure shipping rates and negatively affect the revenues, earnings, cash flow, and share prices of tanker stocks.
Crude oil imports jumped in September
Crude oil imports haven’t grown much since 2012
China’s crude oil import generally trends with the country’s economic activity. When China started to cool after high inflation prompted the government to raise interest rates, import growth started to fall in 2011.
How China’s crude oil import will affect tanker demand and rates
September data shows that China isn’t really slowing down. The above-normal import growth, however, was likely higher than normal due to a few days of national holiday in early October. So October imports may not be as strong as September. While crude oil imports are rising, which is positive, they’re rising rather slower than before.
Oil shipments to China will likely have to average more than 6.7 million barrels a day through the end of the year to offset projected declines in US crude oil imports estimated by the EIA (Energy Information Administration) for this year. As China’s economic growth surge upward is nowhere in sight, shipping rates will likely remain depressed in the short and possibly medium terms. This bodes negatively for Frontline Ltd. (FRO), Teekay Tankers Ltd. (TNK), Nordic American Tanker Ltd. (NAT), and Teekay Corp. (TK). To a lesser extent, the Guggenheim Shipping ETF (SEA) will be negatively affected as well. Looking into 2014, though, the picture may be a bit different.
Read More: China’s crude oil import volume