Teekay Tankers Ltd (TNK) Misses Q4 EPS by 9c, Comments on Market

Teekay Tankers Ltd (NYSE: TNK) reported Q4 EPS of $0.31, $0.09 worse than the analyst estimate of $0.40. Revenue for the quarter came in at $159.3 million versus the consensus estimate of $155.15 million.

Tanker Market

The tanker market in 2015 was the strongest since 2008. The main catalyst for the market strength was continued high levels of global oil production, including an extra 1.0 million barrels per day (mb/d) of crude oil supply from OPEC. Global oil demand was also robust in 2015, growing by 1.7 mb/d, the highest level of growth since the post-financial crisis rebound in 2010. Oil prices fell in 2015 to the lowest average price in 11 years, which was positive for the tanker market as it led to higher refinery throughput to take advantage of strong refining margins, increased commercial and strategic stockpiling of oil, and lower bunker fuel costs for ship owners. Finally, tanker fleet growth remained low with just 2 percent growth in the crude tanker fleet during 2015.

The fourth quarter of 2015 was particularly strong, led by the large crude tanker sectors. This strength was driven by firm underlying fundamentals coupled with seasonal and one-off factors. The fourth quarter saw the onset of winter weather delays, including an increase in transit time through the Turkish Straits and fog in the US Gulf. Ullage-related delays resulted in increased waiting times at discharge ports due to logistical constraints, which further added to rate volatility during the fourth quarter.

Looking ahead, the Company anticipates that many of the positive fundamentals which existed in 2015 will continue during 2016. Global oil demand is forecast to grow by 1.3 mb/d in 2016 (based on the average of IEA, EIA, and OPEC forecasts). While this is a decrease from 2015 oil demand growth of 1.7 mb/d, it is above the average growth rate of 1.0 mb/d over the last decade. Global oil production is anticipated to remain high with no change to OPEC policy expected in 2016. In addition, the return of Iranian production is projected to add up to 0.5 mb/d of supply in 2016, further increasing global crude oil exports and keeping oil prices relatively low. Finally, while tanker fleet growth is set to increase in 2016, the tanker fleet growth is relatively modest for the mid-size sectors with anticipated tanker fleet growth of 4.5 percent and 4.0 percent in the Suezmax and Aframax/LR2 fleets, respectively, which compares favorably to the average fleet growth in the last decade of approximately 5.0 percent per annum. Furthermore, the fleet growth is weighted towards the second half of the year and thus, the full impact should be felt more in 2017 than in 2016.

In addition to positive supply and demand fundamentals, changing trade patterns are expected to benefit the mid-size tanker sectors in 2016. Although it is not expected to immediately translate into an influx of U.S. crude oil into global markets, the relaxation of the U.S. crude oil export ban is already resulting in an increase in European and West African imports to the U.S. Atlantic coast. The spread between the West Texas Intermediate (WTI) and Brent oil price has narrowed enough to make seaborne transportation of oil to the U.S. more economical than rail or truck transportation within the U.S. from domestic producers. Mid-sized tanker markets could also benefit from the expansion of the Panama Canal, which is scheduled to be completed in June 2016, as it will facilitate trade movements between the Atlantic and the Pacific, including crude and condensate exports from the U.S. Gulf to Asian markets.

Overall, the Company expects that 2016 will be a strong year for crude tanker fundamentals driven by high levels of global oil supply, rising oil demand, low oil prices, changing trade routes, and a manageable level of fleet growth.

For earnings history and earnings-related data on Teekay Tankers Ltd (TNK) click here.

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