By Sam Boughedda
Jefferies remained positive on tanker stocks in a note to clients on Tuesday, with analysts stating that strong rates defy seasonal norms and that there is a favorable outlook despite OPEC risk.
"Tanker rates are strong and defying seasonal patterns, leading us to revise our 2Q earnings estimates upward," they explained. "VLCC spot rates have strengthened since mid-February, recently surpassing $100,000/day. Increased Far East demand, particularly to China, has led to a jump in cargo volumes out of the Middle East, West Africa, and U.S. Gulf."
They said the firm maintains its positive view on the sector and kept Buy ratings on Euronav (NYSE: EURN ), International Seaways (NYSE: INSW ), Scorpio Tankers (NYSE: STNG ), and DHT Holdings (NYSE: DHT ).
However, the analysts acknowledged that there is a risk of another production cut, the oil balance remains tight, and increased OPEC output is needed in the coming months to meet demand growth.
"Softer crude oil price presents a near-term risk, but the oil balance remains tight," added the analysts. "While OPEC may choose to reduce supply at its next meeting on April 3rd, the oil balance is very tight for the remainder of the year."
"At current OPEC production levels, oil supply would be evenly matched with global oil demand during 2Q, but supply will be in a 1.5 mb/d deficit during the second half of the year. Thus, we see any output curtailments as short-lived, especially since a 0.5 mb/d cut would quickly reduce oil stockpiles back to ~20-year lows."
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