Who benefits from the soaring tanker freight rates?

PVTrans (PVT) will benefit significantly from the increase in tanker prices throughout the world for the O&G transportation sector in Vietnam.

In response to the Russia-Ukraine conflicts, the EU has adopted sanctions on Russian oil. Based on the latest sanctions package, most imports of crude oil and petroleum products via the sea into the EU will be banned by the end of 2022. Thus, they have to switch to other oil supplies, particularly from the US and Middle East, sparking the reconfiguration of global oil trade flows.

Indeed, Bloomberg estimates that oil volume from the Middle East to Europe in July was 90% higher than in January. In contrast, Russia is shifting oil exports to Asian buyers like China and India.

After the Russia-Ukraine crisis occurred, reshaping global oil trade flows, Russian oil has been heading to Asian buyers like China and India. As the EU bans Russian oil and fuels, demand for both dirty and clean tankers has been rising due to the reconfiguration of global oil trade flows.

For the crude shipping market, Clarsons Research estimates crude transport demand to slightly increase in the next two years due to the rerouting of oil shipping voyages. Meanwhile, tanker supply is expected to rise modestly, boing well for crude shipping charter rates.

For the fuel shipping market, it looks like the future is brighter for this sector due to longer shipping routes amidst global consumption recovering after the pandemic. Longer shipping routes will reduce fuel volumes transported, causing a potential shortage in the clean tanker market. Mr. Nguyen Ngoc Hai, analyst at VNDirect, expects oil product tanker earnings to increase significantly in the coming years.

Notably, as geopolitical tension is intensifying, Russia has choked off supplies of cheap natural gas to the EU. Thus, Mr. Nguyen Ngoc Hai believes European diesel demand is likely to accelerate ahead of an upcoming severe winter and a global tight fuel market as it has multiple uses, particularly in industry and power generation (to replace gas-fired power). This should boost clean tanker demand, further intensifying competition for a limit  ed fleet of clean tankers.

The companies with significant exposure to the foreign market, such as PVTrans (PVT), will benefit significantly from the increase in tanker prices throughout the world for the O&G transportation sector in Vietnam. 80% of PVT's fleet is currently engaged in international travel, and the majority of these trips are arranged through time-charter agreements, which, in the opinion of Mr. Nguyen Ngoc Hai, should be extended at higher rates in the future. Additionally, he favors GSP and PVP because they also run crude and refined product tankers on the global market.

"Potential upside risks are stronger-than-expected global oil and fuel demand and the lingering Russia-Ukraine crisis to boost tanker rates. The downside risk is lower-than-expected global demand due to the economic recession", said Mr. Nguyen Ngoc Hai.