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These 3 Oil Stocks Are the Winners from Today’s Shocking Price Crash

Last Updated September 23, 2020 1:50 PM
Mark Emem
Last Updated September 23, 2020 1:50 PM
  • Oil’s demand shock is crowding out storage facilities across the globe.
  • The OPEC+ production cuts have proven to be no solution to the existing glut.
  • Demand for floating storage will benefit oil tanker stocks.

The coronavirus pandemic ignited an oil demand shock, and producer nations are quickly running out of places to store their excess crude. With conventional storage facilities nearing full capacity, oil traders are turning to the next-best alternative – floating storage.

Demand for supertankers, which can store up to two million barrels of oil, has surged by 500% over the past two months  in some regions. Unsurprisingly, charter rates have more than doubled since March and now range as high as $350,000 per day.

Demand collapses to mid-1990s levels

This comes at a time when global oil demand has collapsed by nearly 30 million barrels per day to levels last seen in 1995.

In an email to CNBC, Rystad Energy wrote that exhaustion of storage space is approaching as oil extraction  goes on unhindered:

The real problem of the global supply-demand imbalance has started to really manifest itself in prices. As production continues relatively unscathed, storages are filling up by the day.

Global storage facilities are expected to be filled to the brim by next month when stock levels are expected to rise by between 500 million and one billion barrels.

Oil prices crash to record lows

With the recently announced production cuts by OPEC+ proving ineffective, oil prices have continued plummeting. The May futures contract for U.S. crude dove as much as 75% on Monday to hit a new record low below $5 .

West Texas Intermediate (WTI) crude futures are now trading at $6.54 per barrel, having plunged by 64% from Friday’s close.

crude oil price
The crude oil futures set for expiration this week are getting hammered to record lows. | Source: Yahoo Finance 

One industry’s pain is another sector’s gain

The oil industry’s dire predicament is a boon for oil tanker shipping companies.

Here are three oil tanker shipping stocks that could see increased revenues and profits in the months to come as the oil industry grapples with a supply glut:

1. Analysts say DHT Holdings is a buy

The Bermuda-headquartered DHT Holdings (NYSE:DHT) enjoys a consensus rating of BUY. Among the ten analysts currently covering the stock, nine have issued a BUY rating.

DHT Holdings oil tanker stock
Analysts have overwhelmingly recommended DHT Holdings as a BUY. | Source: Barron’s 

With an average price target of $8.88, this stock has a potential upside of nearly 20% from current levels.

2. This shipping stock has potential for 40% upside

Just like DHT Holdings, Teekay Tanker Ltd (NYSE: THK) is headquartered in Bermuda. The oil tanker shipping giant enjoys a consensus rating of BUY.

Its average stock price target is $28.33. At the current price of $19.94, this presents a potential upside of over 40%.

Teekay Tankers
Teekay Tankers could go up by over 40% if analysts’ expectations come true. | Source: Barron’s 

3. Oil tanker stock Frontline is a Wall Street darling

Frontline Ltd (NYSE:FRO) – the world’s largest oil tanker shipping firm – is another Wall Street darling. Among the 11 analysts covering it, ten have issued a BUY rating.

The stock is currently trading at $9.60, with an average price target of $12.20. This presents a potential upside of 27%.

Frontline oil tanker stock
Frontline Ltd boasts ten positive analyst recommendations.| Source: WSJ 

With a price-to-earnings ratio of 13.63 , Frontline enjoys a lower P/E than either DHT Holdings (16.96)  or Teekay Tankers (16.74) .

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the stocks mentioned.