Analyst downgrades oil tanker operators, says economic recovery won't grow fast enough by year-end to stimulate oil production and boost rates for tanker companies
August 4, 2011
– A Jefferies analyst on Wednesday downgraded shares of Overseas Shipholding Group Inc. and Frontline Ltd., saying the economy won't grow fast enough to stimulate oil production and boost rates for tanker companies by the end of the year.
Reports from the International Energy Agency and the weakening economic outlook provide a "one-two punch" for rebound expectations in the second half of this year, analyst Douglas J. Mavrinac wrote in a note to clients.
While IEA's decision in late June to release oil from emergency stockpiles reduced and delayed tanker charter rate rebound expectations into the fourth quarter, he said ongoing downward revisions of gross domestic product forecasts "translates to insufficient oil inventory destocking." That means demand won't be robust enough to make up for the added supply, meaning rates won't rebound as were expected.
The analyst said rates tanker owners can charge won't begin to rebound until at least the second half of next year, which means the next year will likely prove challenging for oil tanker operators.
He cut shares of both Frontline and Overseas Shipholding Group to "Hold." Although both stocks have lost ground in recent weeks, he still thinks they won't grow enough to warrant a "Buy" rating.
Frontline shares lost 28 cents, or 2.9 percent, to $9.54 in afternoon trading Wednesday while Overseas Shipholding lost $1.96, or 9.1 percent, to $19.64.
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