Tanker rates falling to barely break-even levels and companies sliding heavily into the red is the bleak scenario painted for 2009 by Jefferies.
Tanker rates falling to barely break-even levels and companies sliding heavily into the red is the bleak scenario painted for 2009 by Jefferies, US investment bank.
The latest Opec production cuts, shipyard deliveries, and the release of tankers from storage duties, will combine to depress spot freight rates and earnings, and as a result the bank has reduced 12-month share price targets for most of the quoted companies it covers.
The bank believes Opec"s pledged production cuts will translate to about an 8%-9% contraction in crude oil tanker demand in 2009, while the fleet is likely to expand by 14%-15%, leading to a ?significantly oversupplied? freight market.
?In fact, we believe crude oil tanker fleet utilisation could decline 22%-24% in 2009, which could cause crude oil tanker charter rates to decline significantly from current levels.?
The bank has reduced its estimates of next year"s average daily crude tanker spot charter rates to $30,000 for very large crude carriers, $25,000 for suezmaxes, and $20,000 for aframaxes, ?essentially just above cash flow break-even levels?.
Two months ago, Jefferies expected th average 2009 rates to be $50,000, $40,000, and $35,000, respectively.
According to Jefferies" latest research, the two biggest losers will be Teekay Corp and Overseas Shipholding Group.
The bank has revised its forecast of Teekay"s 2009 earnings per share to a loss of $1.48 from a surplus of $3.44, while also OSG slips to a loss of $1.33 from earnings of $7.66.
Jefferies believes Frontline will manage to produce earnings of $0.17 per shares, although this forecast is down from the previous $3.03.
The bank has downgraded the shares of four of the 11 companies in its universe, with the recommendations on Frontline and Nordic American moving from "hold" to "underperform," and those of OSG and Tsakos Energy Navigation from "buy" to "hold".
In terms of share price targets, OSG"s has been slashed from $100 to $40, while those of Frontline and Teekay both come down by about one-third to $17 and $35, respectively.