Supertankers At Work For Higher Rates

Tanker Glut Signals 25% Slump In Freight Rates This Year

as Oil Prices Fall

February 19, 2015

Tanker Glut Signals 25% Slump In Freight Rates This Year
Oil tankers are anchored near the Port of Long Beach, California.
Photographer: Tim Rue/Bloomberg

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(Bloomberg) — The world’s supertankers are sailing at the fastest speeds in 2 1/2 years as a collapse in crude oil prices spurs demand for cargoes and drives up daily returns owners can make from deliveries.
Very large crude carriers, each about 1,000-feet long and able to transport 2 million barrels of oil, sailed at an average of 12.57 knots this month, according to data from RS Platou Economic Research, an Oslo-based firm. The fleet, whose steel weight is about 27 million metric tons, last moved that fast in August 2012.
Tanker rates have surged amid signals that China accelerated purchases of crude to fill its stockpiles after Brent crude, the global benchmark, collapsed last year. Prices plunged in part because the Organization of Petroleum Exporting Countries pledged to keep pumping oil amid a global oversupply. The ships earned an average of more than $71,000 a day since the start of January, the best start to a year in Baltic Exchange data that begin in mid-2008.
“Freight rates are high because there’s a lot of oil trade at the moment,” Frode Moerkedal, an Oslo-based analyst at Platou Markets, an investment adviser linked to the research company, said by phone on Thursday. “OPEC has refused to cut production so there’s more oil being shipped.”
VLCC speeds from 14-to-16 Feb. were 6.7 percent higher than 14-to-16 Nov., according to Platou. The speed for the ships when voyaging without cargoes rose 10 percent over the same period to 13.31 knots.
Fuel Costs
The daily average rate to hire a VLCC on the benchmark Middle East-to-East Asia route was $71,772 so far in the first quarter, compared with an average of $47,614 in the fourth quarter, according to Baltic Exchange data.
VesselsValue Ltd., a London-based firm that provides shipping data, also estimates VLCCs are sailing at the fastest since 2012. The acceleration is in part because falling oil prices have cut fuel costs and made it more profitable for owners to transport cargoes, said Kaizad Doctor, analytics director. Ship fuel is known as bunker.
“This can be attributed to the simultaneous decrease in the oil prices and the consequent reduction in bunker prices but also due to the increase in rates caused by the Chinese re-stocking cut-price crude,” Doctor said.

Protect Your Portfolio Profits Offshore  see http://www.youroffshoremoney.com

Shipping Sector Continues Decline ( as we forecast) – Index Hits Thirty Year Low

NOTE : This Is A Global Economic Indicator At A 30-Year Low

 

  • The Baltic Dry Index falls another 3.8% and is now trading at its lowest levels since the 1980s, even as traded volumes of many commodities are reaching record levels.
  • The dry-bulk market has been sunk by a perfect storm as new ships ordered after the financial crisis have hit the seas just as Chinese economic growth has slowed and commodity prices have turned lower.
  • Earnings for a capesize vessel typically used to transport coal and iron ore have fallen to $6,707/day today, down ~50% Y/Y and hardly enough to cover daily operating expenses of $6K-$10K.
  • As one analyst says, some of the share prices are starting to reflect almost a state of bankruptcy: Shares of Scorpio Bulkers (NYSE:SALT), for one, have plunged 85% in the past year, and Star Bulk Carriers (NASDAQ:SBLK) has shed 67% in the same period.
  • Related tickers: FREE, EGLE, SB, DRYS, NM, SHIP, ESEA, PRGN, DCIX, GSL,NMM, DSX, DAC, KEX, ULTR, BALT, SINO.
image

My rant – the  curse of Cassandra :

Cassandra, daughter of the king and queen, in the temple of Apollo, exhausted from practising, is said to have fallen asleep – when Apollo wished to embrace her, she did not afford the opportunity of her body. On account of which thing :

when she prophesied true things, she was not believed.

I have written :

Managed Accounts Year End Review and Forecast

Our post and Chart Of The Day on Tuesday focused on the 5-Year Breakeven Inflation Rate. The impetus for mentioning it was due to the rate hitting its lowest levels since its inception in 2003, other than during the financial crisis. The point is that the indicator is signaling the lowest inflation, and greatest threat of deflation during that time. We also mentioned that we would try to avoid further rare (and unwelcomed) forays into the economic realm, as opposed to our usual financial market turf. Well, that attempt lasted a whole 3 days.

While the subject of today’s Chart Of The Day is not an explicit economic indicator, the message behind its behavior is inexorably tied to the global economic outlook. And the message it is sending is similar to that of the 5-Year Breakeven Inflation Rate currently. The Baltic Dry Index is a composite of various global shipping rates tied to the movement of raw materials. Thus, the price of the BDI is an indicator of the level of global demand for shipping raw materials, specifically. It is also considered by many to be an indicator of the level of global economic growth, in general. If that is indeed the case, it is not good news for the global economy since the BDI dropped yesterday to $632 the lowest level in almost 30 years. And but for a few months in 1986, it would be a record low in its history.

image

Given the recent decline in the price of many commodities, the fact that the Baltic Dry Index would be at depressed levels is not a surprise. Like any other market measure, the BDI is a function of supply and demand. In this case, there are basically two factors involved: ships and cargo. With the supply of ships typically at a fairly constant level, it comes down to the cargo, in this case, raw materials. And with materials prices dropping, so too should the BDI. Conversely, the BDI hit an all-time high around $11,800 in 2008, concurrent with the Chinese-led bubble top in many commodity prices.

The curious thing is the fact that the BDI has dropped below the floor around 650 that it held in 2008 and a few times in 2012. At those periods, prices here actually marked a low-point of sorts and upside opportunity across many assets. We don’t know for sure but we expect the breakeven level for shipping operators must be somewhere in the vicinity of that 650 level, given the fact that it held there so precisely. The fact that it dropped below now is that much more telling. This is especially so given the fact that even with the sell off, most commodities are still comfortably above their 2008-2009 lows. That would suggest that there is also a weak demand dynamic in play here as well as merely low prices for materials.

So what should folks make of this development in the Baltic Dry Index, assuming they are not directly involved in international shipping of raw materials? The BDI is one of those things that became fashionable to talk about in financial circles, even if nobody really knew what it was or what its implications were. Its sudden popularity arose during the materials boom in 2008. And to be honest, despite its intriguing concept, we had no idea what to do with it either. So we actually took a further cursory look at its correlation traits to see what, if any, benefit it has as an indicator.

Running a scan of the BDI correlation versus our universe of global indexes over the past decade or so, we found that, surprise, it is most correlated with companies dealing in raw materials and industrial metals and the like. Just what you’d expect. Therefore, it is a decent gauge of the performance and potential of those industries. And if the well-being of these companies is an accurate gauge of the broader economic outlook, then perhaps the BDI is indeed a fair global economic barometer.

Interestingly, the batch with the next highest correlation with the BDI was a collection of European stock markets. Given that these markets have fluctuated with the global economy, as the BDI has, much more so than, say, the U.S. market over the past 5 years or so, this is another head’s up that the BDI may be a decent indicator of economic growth. For example, in 2012, many of the European  markets hit major lows along with the BDI while the U.S. market was able to come away relatively unscathed.

Lastly, the other highly correlated market over the last 10 years is China with a roughly +0.6 correlation coefficient. Given the aforementioned Chinese-driven commodity bubble in 2008 which spiked the BDI, this is not surprising. The surprising thing is what has happened over the past 6 months. As commodities and the BDI have collapsed, the Shanghai Composite has soared. In fact, the two have a negative 0.6 correlation coefficient over that time. We don’t know what’s behind this…but something is different.

So what’s the point? If you’ve always ignored the Baltic Dry Index, feel free to continue to do so. We are not going to ingest it into our investment risk models either, since we pay very little attention to economic indicators anyway. However, the message behind the BDI plumbing new 30-year lows is straightforward. Like with the 5-Year Breakeven Inflation Rate, the BDI is sending deflation warnings. And whether or not the BDI is a sound global economic indicator, the deflationary signal is reason enough for some concern.

 

“SHIPWRECK” photo by Marckles55from Dana Lyons

and now you have to decide for 2015.

No one – and I am not being humble here – can project the future with great accuracy but our clients continue to do very well and we offer that experience to you.

Jack A. Bass Managed Accounts

Fees : 1 % annual set up and a performance bonus of 20 % – only if we perform.

You can withdraw your funds at the rate of 1 % monthly if you require an income stream

Contact information:

To learn more about portfolio management , tax reduction,asset protection, trusts ,offshore company formation and structure for your business interests (at no cost or obligation)

Email

jackabass@gmail.com OR

info@jackbassteam.com  OR

Telephone  Jack direct at 604-858-3202

10:00 – 4:00 Monday to Friday Pacific Time ( same time zone as Los Angeles).

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

Tax Free Portfolio  Growth website  Http://www.youroffshoremoney.com

2014 Commodity Review – Record Losing Run

Oil Set for Biggest Slump Since 2008 as OPEC Battles U.S. Shale

Photographer: Ty Wright/Bloomberg

Rig hands work at a Knox Energy Inc. oil drilling site in Knox County, Ohio, U.S. OPEC… Read More

Oil headed for the biggest annual decline since the 2008 global financial crisis as U.S. producers and the Organization of Petroleum Exporting Countries cede no ground in their battle for market share amid a supply glut.

Futures slid as much as 1.1 percent in New York, bringing losses for 2014 to 46 percent. U.S. guidelines allowing overseas sales of ultralight oil without government approval may boost the country’s export capacity and “throw a monkey wrench” intoSaudi Arabia’s plan to curb American output, according to Citigroup Inc. U.S.crude inventories are forecast to rise to the highest level for this time of the year in three decades.

Oil’s slump has roiled markets from the Russian ruble to the Nigerian naira and squeezed government budgets in producing nations including Venezuela and Ecuador. It’s also boosted China’s emergency crude reserves and helped shrink fuel subsidies in India and Indonesia. OPEC has signaled it won’t cut supply to influence prices, instead preferring to defend market share amid an unprecedented U.S. shale boom.

“For this year, the biggest factor driving down oil prices was U.S. shale production followed by a price war,” Hong Sung Ki, a commodities analyst at Samsung Futures Inc. in Seoul, said by phone today. “The possibility of U.S. curbing output will be the only booster but nothing has been done, so we’re seeing a continuation of the price decline.”

West Texas Intermediate for February delivery dropped as much as 57 cents to $53.55 a barrel in electronic trading on the New York Mercantile Exchange and was at $53.75 at 12:04 p.m. Singapore time. The contract climbed 51 cents to $54.12 yesterday, gaining for the first time in four days. Total volume was about 68 percent below the 100-day average.

U.S. Condensate

Brent for February settlement fell as much as 72 cents, or 1.2 percent, to $57.18 a barrel on the London-based ICE Futures Europe exchange. Prices have decreased 48 percent this year. The European benchmark crude traded at a premium of $3.62 to WTI, compared with $12.38 at the end of last year.

President Barack Obama’s administration opened the door for expanded oil exports by clarifying that a lightly processed form of crude known as condensate can be sold outside the U.S.

The publication of guidelines by the Commerce Department’s Bureau of Industry and Security is the first public explanation of steps companies can take to avoid violating export laws. It doesn’t end the ban on most crude exports, which Congress adopted in 1975 in response to the Arab oil embargo.

“While government officials have gone out of their way to indicate there is no change in policy, in practice this long-awaited move can open up the floodgates to substantial increases in exports by end-2015,” Citigroup analysts led by Ed Morse in New York said in an e-mailed report.

Shale Oil

The U.S. oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, or fracking, which has unlocked supplies from shale formations including the Eagle Ford and Permian in Texas and the Bakken in North Dakota. Production accelerated to 9.14 million barrels a day through Dec. 12, the fastest rate in weekly data that started in January 1983, according to the Energy Information Administration.

Crude stockpiles probably expanded by 900,000 barrels to 387.9 million in the week ended Dec. 26, based on the median estimate of nine analysts surveyed by Bloomberg News before today’s report from the Energy Department’s statistical arm.

“What we’re seeing is that supplies from North America have really outpaced worldwide demand growth and as a result, we have a supply glut,” Andy Lipow, the president of Lipow Oil Associates LLC in Houston, said by phone. “And that of course has put pressure on prices over the last several months.”

OPEC Policy

Global markets are oversupplied by 2 million barrels a day, according to Qatar’s Energy Minister Mohammed Al Sada. Saudi Arabia, which is leading OPEC to resist production cuts, has said it’s confident that prices will rebound as global economic growth boosts demand.

OPEC, which pumps about 40 percent of the world’s oil, decided to maintain its output quota at 30 million barrels a day at a Nov. 27 meeting in Vienna, ignoring calls for supply reductions to support the market. The 12-member group produced 30.56 million a day in November, exceeding its collective target for a sixth straight month, a separate Bloomberg survey of companies, producers and analysts shows.

Saudi Arabia this month offered the widest discounts in more than 10 years to sell crude to Asia, a move followed by Iraq, Kuwait and Iran. That prompted speculation that Middle East producers are protecting market share amid increased shipments from Latin America, North Africa and Russia.

Economic Fallout

Venezuela’s President Nicolas Maduro vowed an economic “counter-offensive” to steer the OPEC member out of recession as it struggled with the world’s fastest inflation. Ecuador, which relies on crude for about a third of its revenue, may cut next year’s budget by as much as $1.5 billion and seek additional financing if prices don’t stabilize, the Finance Ministry has said.

Oil’s collapse has also threatened to push Russia, the world’s second-largest crude exporter, into recession as its currency headed for its steepest annual slide since 1998. The economy, which relies on crude sales for almost half its budget, may shrink as much as 4.7 percent next year if oil averages $60 a barrel, according to the central bank. Russia must adapt to the reality of prices that could drop to as low as $40, President Vladimir Putin said on Dec. 18.

In China, a factory gauge for December fell to a seven-month low today, adding to signs of slowing growth in the world’s second-biggest oil consumer. The Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was at 49.6, down from 50 in November, indicating a contraction.

The Asian nation will account for about 11 percent of global demand in 2015, compared with 21 percent for the U.S., projections from the International Energy Agency in Paris show.

Commodities Head for Record Losing Run on Oil’s Rout, Dollar

The Bloomberg Commodity Index (BCOM), which tracks 22 products from crude to copper, traded at 106.0552 points at 11:45 a.m. in Singapore from 106.1031 yesterday. It’s lost 16 percent this year, with crude, gasoline and heating oil as the biggest decliners. The gauge fell to 105.7551 yesterday, the lowest level since March 2009, and a fourth year of losses would be the longest since at least 1991. A breach of 101.9986 in 2015 would bring the measure to its lowest since 2002.

Energy prices collapsed in 2014 as a jump in U.S. drilling sparked a surge in output and price war with OPEC, which chose to maintain supplies to try to retain market share. The dollar climbed to the highest level in more than five years as a U.S. recovery spurred speculation that the Federal Reserve will start to raise borrowing costs next year. Commodities are set for a volatile year in 2015, with crude oil poised to extend its slump, according to Australia and New Zealand Banking Group Ltd.

“What we’re seeing is that supplies from North America have really outpaced worldwide demand growth and as a result, we have a supply glut,” Andy Lipow, president of Lipow Oil Associates LLC in Houston, said by phone. “And that of course has put pressure on prices over the last several months. And as a result, it’s dragging down commodities indexes as well.”

Brent Slumps

Brent for February settlement traded at $57.48 a barrel on the London-based ICE Futures Europe exchange, with front-month prices 48 percent lower this year. West Texas Intermediate dropped 0.6 percent to $53.81 a barrel on the New York Mercantile Exchange. Gasoline sank 44 percent this year.

A slowdown in China also hurt demand for raw materials as policy makers grappled with a property slowdown, and data today showed a factory gauge at a seven-month low in December. The world’s biggest user of metals is headed for its slowest full-year economic expansion since 1990. China’s central bank cut interest rates last month for the first time since 2012.

Coffee was the biggest gainer this year as the worst drought in decades eroded supplies in Brazil, the largest producer and exporter. Nickel rose the most among metals, gaining 9 percent to $15,149 a metric ton on the London Metal Exchange after Indonesia halted ore exports. Both commodities rose in the early months of 2014, before dropping this quarter.

Oil Outlook

While most commodities looked oversold as the New Year neared, weak near-term fundamentals were unlikely to bring much confidence, ANZ analysts including Mark Pervan said in a report dated Dec. 22. An oversupplied market was likely to keep crude oil prices under pressure, they wrote.

Deutsche Bank AG this month cut its 2015 forecast for Brent to $72.50, down from an October prediction for an average of $88.75. Goldman Sachs Group Inc. expects Brent to average $80 to $85 a barrel in 2015, while WTI may trade at $70 to $75.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against major peers, advanced 10.6 percent in 2014 amid speculation the Fed may raise interest rates in the third quarter as the world’s biggest economy improves. The greenback strengthened against all of its 31 major peers this year.

You Have Options:

What To Do ?

Here is our recent letter:

Managed Accounts Year End Review and Forecast

November 2014 – 40 % cash position
Gold and Precious MetalsThe largest gains for our clients came from the exit from the gold producers at $18oo an ounce and continuing until we hold no gold and no gold miners . This from the author of The Gold Investors Handbook.2015 – We continue to be on the sidelines for this sector – regardless of the gnomes of Switzerland . As a safe haven gold simply wasnot there for investors despite turmoil in the Middle East, Africa and Ukraine.How much more frightening can the prospect for peace be than to have wars in multiple locations? Secondly the spectre of inflation – on which I have given numerous talks – simply failed to materialize. In fact economists and portfolio managers such as myself are now more concerned about deflation – and the spectre is a Japanese style decades long slide in the world economy.
Shipping Sector / Bulk ShippersYou can review our stock market letter athttp://www.amp2012.com to follow our profits in the shipping sector before our retreat as overcapacity has yet to effect continued overbuiding. In 2008-9 rates-  illustrated by the Baltic Dry Index – were at their peak. The BDI hit over 10,000. Today it is roughly 10 % of that benchmark and the sector slide continues. We have an impressive watchlist of former ” darlings” – but we are content to watch and wait.
Oil/ Energy I am very happy for the call in natural gas prices – out at $12 and into oil. When oil was above $100 we lessened positions and that is our saving grace in the past two weeks. We are not bottom feeders and will wait for a turn in the market before reentering drillers or producers.On Friday November 27th, crude oil prices dropped to below $72 and the slide has continued into the weekend, with Brent crude oil at $70.15 as I write this post. Shares of major oil companies traded down on Friday. Our former energy sector holdings are down another between 4% and 11%, including SDRL, which dropped another 8% following Wednesday’s 23% plunge…

Have you avoided these sectors – you would have been better off to follow our advice in 2014 and now you have to decide for 2015.
No one – and I am not being humble here – can project the future with great accuracy but our clients continue to do very well and we offer that experience to you.

Fees : 1 % annual set up and a performance bonus of 20 % – only if we perform.

You can withdraw your funds monthly if you require an income stream.

Alternate Guaranteed Income Payments

Private client funds Minimum $10,000 Maximum Loan $500,000

Our client is seeking funds to expand their tanker fleet .

Interest 12 % compounded – paid 1% per month

Floating charge of the full $500,000 against the fleet – valued at  more than $ 1 M

 

Contact information:

To learn more about portfolio management ,asset protection, trusts ,offshore company formation and structure for your business interests (at no cost or obligation)

Email

jackabass@gmail.com OR

info@jackbassteam.com  OR

Call Jack direct at 604-858-3202

10:00 – 4:00 Monday to Friday Pacific Time ( same time zone as Los Angeles).

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

Tax website  Http://www.youroffshoremoney.com

Shipping Sector Sinking : Capesize Rates Collapse with Coal / China Imports

“It looks like the market is going to continue being a big disappointment”

A deeper slump in earnings for ships that carry most of the world’s coal and ore cargoes would force owners to take vessels out of service, according to shipbroker RS Platou Markets AS.

Average daily earnings for Capesize ships fell to $3,735 today, the lowest in more than two years, according to data from the Baltic Exchange in London. Rates will probably remain low next year, according to Herman Hildan, shipping analyst at Platou.

“At the moment, they’re barely covering their operating costs,” Hildan said by phone today from Oslo. “It doesn’t make sense for owners to participate in fixing vessels” if rates fall further.

Signs of slowing growth in China, the world’s largest importer of thermal coal and iron ore, have caused a collapse in Capesize rates of about 90 percent this year. China’s economy will expand by 7 percent next year, the slowest growth in a quarter century, according to economist forecasts in a Bloomberg survey. Customs data showed a slump in ore imports in November.

Hildan’s own estimates show Capesize vessels are currently earning $6,900 a day on average. Shippers would begin taking their vessels out of service when the daily rate falls below $5,000, he said.

The rate for the vessels, which can carry as much as 160,000 metric tons of iron ore, has averaged $13,923 in 2014, according to Baltic Exchange data. Analysts were expecting daily earnings of $18,500, according the median of estimates gathered by Bloomberg in January.

“It looks like the market is going to continue being a big disappointment” in 2015, Hildan said.

It is human nature to look for bargains - and destroy your portfolio as you gather losers into what used to be a ” nest” egg.

Look at Seeking Alpha and count the ” analysts” saying Dryships ( DRYS) is going to turn – how none forecast the sub dollar level it now enjoys.

What To Do ?

Here is our recent letter(the section on shipping)

Managed Accounts Year End Review and Forecast

Shipping Sector / Bulk ShippersYou can review our stock market letter at http://www.amp2012.com to follow our profits in the shipping sector before our retreat as overcapacity has yet to effect continued overbuiding. In 2008-9 rates-  illustrated by the Baltic Dry Index – were at their peak. The BDI hit over 10,000. Today it is roughly 10 % of that benchmark and the sector slide continues. We have an impressive watchlist of former ” darlings” – but we are content to watch and wait.

Have you avoided these sectors – you would have been better off to follow our advice in 2014 and now you have to decide for 2015.
No one – and I am not being humble here – can project the future with great accuracy but our clients continue to do very well and we offer that experience to you.

Fees : 1 % annual set up and a performance bonus of 20 % – only if we perform.

You can withdraw your funds monthly if you require an income stream.

Alternate Guaranteed Income Payments

Private client funds Minimum $10,000 Maximum Loan $500,000

Our client is seeking funds to expand their tanker fleet .

Interest 12 % compounded – paid 1% per month

Floating charge of the full $500,000 against the fleet – valued at  more than $ 1 M

Contact information:

To learn more about portfolio management ,asset protection, trusts ,offshore company formation and structure for your business interests (at no cost or obligation)

Email

jackabass@gmail.com OR

info@jackbassteam.com  OR

Call Jack direct at 604-858-3202

10:00 – 4:00 Monday to Friday Pacific Time ( same time zone as Los Angeles).

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

Tax website  Http://www.youroffshoremoney.com

 

Lor Loewen's photo.

Scorpio Tankers

STNG 

NYSE Update HOLD

HOLD
unchanged
PRICE TARGET US$9.00
unchanged
Price (17-Dec)
Ticker
US$8.19
Company Update

 Scorpio announces an update to its fleet

Purchase of four newbuild LR2s with two additional options
Agreements in place to sell three older vessels

Delivery of six newbuilding product tankers

• STNG agreed to acquire four newbuild slots from Scorpio Bulkers (SALT) with an option
for two additional vessels. These contracts were originally placed by SALT for Capesize
vessels at Korean shipyards, but will be modified to LR2 product tankers. Each vessel
will cost $51 million and they are expected to be delivered in 2016. The price for the
two option vessels is fixed at $52.5 million, and the options are declarable by May 31,
2015. If exercised, these vessels will be delivered in Q4/16.

• Management noted on the call that there are no related party or third party fees
associated with this deal. We estimate the purchase price for the ships are at a
modest discount to current asset values. No financing is in place for this acquisition,
and new credit facilities will be needed to fund this deal.

• We believe this is a modest positive to the story as it expands their fleet in a sector
that we think has good prospects going forward (LR2s) at a price below NAV.
• Scorpio also announced they have agreed to sell three of their older vessels, the STI
Harmony, STI Heritage and the Post-Panamax Venice, for total consideration of $74
million. In connection with this deal, STNG will record a write-down of $2.6 million for
Q4/14.
• Finally, the company announced that they have taken delivery of the LR2 STI Condotti,
which is on charter for 55 days at approximately $30,000/day. The company took
delivery of the MR tankers, the STI Battery and STI Soho which are on 120 day
charters at $18,000 per vessel/day. The three Handymax product tankers, the STI
Finchley, STI Clapham and the STI Poplar, are on 120-day charters at $14,000 per
vessel/day. With these six deliveries, the company now has 25 newbuild deliveries
expected through 2016.

Valuation
Our forward, normalized NAV (2016E) is $8.77 per share. As such, we believe the stock is
somewhat above fair value and feel there are more underfollowed names that are better
ways to play the tanker market. Our $9 price target is based on a 1.0x multiple to our
forward, normalized NAV.

Get Out Of The Oil Patch, Get Out of Dry Bulk Shipping – New Paradigm Update

It is human nature to look for bargains - and destroy your portfolio as you gather losers into what used to be a ” nest” egg.

Look at Seeking Alpha and count the ” analysts” saying Dryships ( DRYS) is going to turn – how none forecast the sub dollar level it now enjoys.

“We could definitely see $55 next week,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “We are probably going to see some violent trading.”

‘Drifting Down’

Skip York, a Houston-based vice president of energy research at Wood Mackenzie Ltd., said the next price target is $45.

“The market hasn’t seen the response they’re looking for on the supply side yet,” York said. “We’re now in this environment where I think prices are going to keep drifting down until the market is convinced, until the signal that production growth needs to slow has been received and acted on by operators.”

Are you still a client of a portfolio manager urging you to ” stay the course” – or worse, telling you to add to losing positions and losing sectors?

small- and mid-capitalization stocks, both E&P and Oil Service, are trading ~60% below their recent peaks, on average.

  • A growing number of stocks are priced at less than one-quarter of their peak prices achieved less than six months ago.

This is what is happening to oil TODAY ( Friday Dec. 12)

U.S. oil drillers, facing prices that have fallen below $60 a barrel and escalating competition from suppliers abroad, idled the most rigs in almost two years.

Rigs targeting oil dropped by 29 this week to 1,546, the lowest level since June and the biggest decline since December 2012, Baker Hughes Inc. (BHI) said on its website today. Those drilling for natural gas increased by two to 346, the Houston-based field services company said. The total count fell 27 to 1,893, the fewest since August.

As OPEC resists calls to cut output, U.S. producers from ConocoPhillips (COP) to Oasis Petroleum Inc. (OAS) have curbed spending. Chevron Corp. (CVX) put its annual capital spending plan on hold until next year. The number of rigs targeting U.S. oil is sliding from a record 1,609 following a $50-a-barrel drop in global prices, threatening to slow the shale-drilling boom that’s propelled domestic production to the highest level in three decades.

“It’s starting,” Robert Mackenzie, oil-field services analyst at Iberia Capital Partners LLC, said by telephone from New Orleans today. “We knew this day was going to come. It was only a matter of time before the rig count was going to respond. The holiday is upon us and oil prices are falling through the floor.”

ConocoPhillips said Dec. 8 that the Houston-based company would cut its spending next year by about 20 percent, deferring investment in North American plays including the Permian Basin of Texasand New Mexico and the Niobrara formation in Colorado. Oasis, an independent exploration and production company based in Houston, said Dec. 10 that it’s cutting 2015 spending 44 percent to focus on its core area in North Dakota.

What To Do ?

Here is our recent letter:

Managed Accounts Year End Review and Forecast

November 2014 – 40 % cash position
Gold and Precious MetalsThe largest gains for our clients came from the exit from the gold producers at $18oo an ounce and continuing until we hold no gold and no gold miners . This from the author of The Gold Investors Handbook.2015 – We continue to be on the sidelines for this sector – regardless of the gnomes of Switzerland . As a safe haven gold simply wasnot there for investors despite turmoil in the Middle East, Africa and Ukraine.How much more frightening can the prospect for peace be than to have wars in multiple locations? Secondly the spectre of inflation – on which I have given numerous talks – simply failed to materialize. In fact economists and portfolio managers such as myself are now more concerned about deflation – and the spectre is a Japanese style decades long slide in the world economy.
Shipping Sector / Bulk ShippersYou can review our stock market letter at http://www.amp2012.com to follow our profits in the shipping sector before our retreat as overcapacity has yet to effect continued overbuiding. In 2008-9 rates-  illustrated by the Baltic Dry Index – were at their peak. The BDI hit over 10,000. Today it is roughly 10 % of that benchmark and the sector slide continues. We have an impressive watchlist of former ” darlings” – but we are content to watch and wait.
Oil/ EnergyI am very happy for the call in natural gas prices – out at $12 and into oil. When oil was above $100 we lessened positions and that is our saving grace in the past two weeks. We are not bottom feeders and will wait for a turn in the market before reentering drillers or producers.On Friday November 27th, crude oil prices dropped to below $72 and the slide has continued into the weekend, with Brent crude oil at $70.15 as I write this post. Shares of major oil companies traded down on Friday. Our former energy sector holdings are down another between 4% and 11%, including SDRL, which dropped another 8% following Wednesday’s 23% plunge…

Have you avoided these sectors – you would have been better off to follow our advice in 2014 and now you have to decide for 2015.
No one – and I am not being humble here – can project the future with great accuracy but our clients continue to do very well and we offer that experience to you.

Fees : 1 % annual set up and a performance bonus of 20 % – only if we perform.

You can withdraw your funds monthly if you require an income stream.

Alternate Guaranteed Income Payments

Private client funds Minimum $10,000 Maximum Loan $500,000

Our client is seeking funds to expand their tanker fleet .

Interest 12 % compounded – paid 1% per month

Floating charge of the full $500,000 against the fleet – valued at  more than $ 1 M

 

Contact information:

To learn more about portfolio management ,asset protection, trusts ,offshore company formation and structure for your business interests (at no cost or obligation)

Email

jackabass@gmail.com OR

info@jackbassteam.com  OR

Call Jack direct at 604-858-3202

10:00 – 4:00 Monday to Friday Pacific Time ( same time zone as Los Angeles).

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

Tax website  Http://www.youroffshoremoney.com

 

Lor Loewen's photo.
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Teekay LNG Partners LP BUY – LNG Is The Only Viable Portion of Shipping Sector

TGP

 NYSE : US$38.06 BUY 
Target: US$46.00 

COMPANY DESCRIPTION:
Founded in 2004, Teekay LNG Parters (TGP) is the third
largest independent owner of LNG carriers. TGP was
organized as a publicly-traded master limited partnership by
Teekay Corporation (TK) as part of its strategy to expand its
LNG and LPG shipping sectors. TGP provides seaborne
transportation of LNG, LPG and crude oil under long-term,
fixed-rate time charter contracts.
All amounts in US$ unless otherwise noted.

 

Energy — Maritime
TEEKAY IS A-OK
Investment recommendation
We are initiating coverage of Teekay LNG Partners (TGP) with a BUY
rating and a $46 price target. Teekay’s strategy of growing organically
primarily through joint ventures with vessels fixed to long-term
contracts is ideally suited to the nature of the LNG business.
Investment highlights
 Substantial long-term charter coverage leads to cash flow visibility:
Teekay’s LNG fleet has substantial charter coverage, with an
average remaining contract length of 14 years. Long-term charter
coverage is critical for shipping MLPs in order to provide stability to
cash flows and maintain the safety of the distribution.
 Organic growth should drive distribution increases: With 15 LNG
vessels and 10 LPG vessels expected to be delivered through 2020,
Teekay LNG already has significant built-in growth. We expect a 6%
net income per distribution CAGR through our forecast period
(2017). The company’s growth profile is heavily weighted to 2017+,
which is when we expect the LNG market to be most robust.
 Leader in developing new technologies: The company was a leader
in developing LNG vessels with the new MEGI engine, which
provides substantial fuel savings to charters. While this is one of the
rare cases where ships were ordered by Teekay without charters
attached, the gamble paid off as five of the remaining vessels
(including options) were recently chartered to Shell for 6-8 years.
Valuation
Our $46 price target is based on dividend discount model using a 9%
discount rate and 3% distribution growth rate.
Risks
Geopolitical risks may hinder LNG projects in Russia from coming
online, and delays/cancellations of planned LNG export terminals in
North America and elsewhere may negatively impact fundamentals.

Tax website http://www.youroffshoremoney.com

Management  http://www.jackbassteam.com

Shipping Sector Drops With Oil Sector – Don’t Try To Pick The Bottom

Tonnage Keeps on Coming – sector keeps drifting to the reefs

Dry Bulk Forecaster

London, UK, 8th February 2012 – Drewry Maritime Research’s latest edition of its Dry Bulk Forecaster pulls no punches in its assessment of a market that looks certain to continue hitting dry bulk shipowners hard.

Tonnage supply hit a massive 605 million dwt at the end of 2011, an increase of 15.2%, which is even more impressive considering 19 million dwt was removed in the same period. With rates suffering under current market conditions Drewry’s forecast for the fleet hitting 684 million dwt by the end of 2012 and 765 million dwt by the end of 2016 signals daunting prospects for the future.

The near future will play heavily on supply-side fundamentals, as ships continue to hit the water at a very fast pace. Given the colossal delivery schedule and slippage from previous years, deliveries in 2012 are forecast to increase further to 97.6 million dwt. The largest increase in deliveries is foreseen in the VLOC segment, where a total of 16.5 million dwt of tonnage will hit the water compared with only 8.9 million dwt in 2011. In light of
China’s recent ban on such vessels, this could mean further headaches for owners.

Demolition in this over-supplied market totalled 19.1 mdwt in 2011, nearly quadruple that of the preceding year, as the ailing hire market forced owners to retire older ships. 2012 levels are forecast to reach almost the same as 2011 due to the declining average demolition age of vessels. However the Capesize segment is set to see a decline in demolition levels as most of the obsolete vessels were already demolished in 2011. In the longer forecast period all demolitions are expected to decline, to total 10.6 mdwt in 2016.

Shalini Shekhawat, a dry bulk analyst at Drewry stated, “It’s not all bad news for the sector as Drewry forecasts a 4% growth in trade for 2012, increasing yearly to a rate of 5.8% come 2016, which considering growth stood at less than 1% in 2011 is a boost for the market . Coupled with an orderbook that has been shrinking since February 2009, when it sat at 295 million dwt, there are glimmers of hope that the serious issue of over supply can start to be addressed.”

The AMP Year End Forecast – right on oil and the shipping sector :

Here is our recent letter:

Managed Accounts Year End Review and Forecast

Managed Accounts Year End Review and Forecast
November 2014 – 40 % cash position
Gold and Precious Metals

The largest gains for our clients came from the exit from the gold producers at $18oo an ounce and continuing until we hold no gold and no gold miners . This from the author of The Gold Investors Handbook.

2015 – We continue to be on the sidelines for this sector – regardless of the gnomes of Switzerland . As a safe haven gold simply wasnot there for investors despite turmoil in the Middle East, Africa and Ukraine.How much more frightening can the prospect for peace be than to have wars in multiple locations? Secondly the spectre of inflation – on which I have given numerous talks – simply failed to materialize. In fact economists and portfolio managers such as myself are now more concerned about deflation – and the spectre is a Japanese style decades long slide in the world economy.

Shipping Sector / Bulk Shippers

You can review our stock market letter at http://www.amp2012.com to follow our profits in the shipping sector before our retreat as overcapacity has yet to effect continued overbuiding. In 2008-9 rates-  illustrated by the Baltic Dry Index – were at their peak. The BDI hit over 10,000. Today it is roughly 10 % of that benchmark and the sector slide continues. We have an impressive watchlist of former ” darlings” – but we are content to watch and wait .

Oil/ Energy

I am very happy for the call in natural gas prices – out at $12 and into oil. When oil was above $100 we lessened positions and that is our saving grace in the past two weeks. We are not bottom feeders and will wait for a turn in the market before reentering drillers or producers.

On Friday November 27th, crude oil prices dropped to below $72 and the slide has continued into the weekend, with Brent crude oil at $70.15 as I write this post. Shares of major oil companies traded down on Friday. Our former energy sector holdings are down another between 4% and 11%, including SDRL, which dropped another 8% following Wednesday’s 23% plunge:

Company                                   (Ticker)                        Price Change
Energy Transfer Partners LP (NYSE:ETP)             $ 65.17 -4.13%
Exxon Mobil Corporation (NYSE:XOM)                $ 90.54 -4.17%
Chevron Corporation (NYSE:CVX)                       $108.87 -5.42%
ConocoPhillips (NYSE:COP   )                                 $ 66.07 -6.72%
Vanguard Natural Resources, LLC (NASDAQ:VNR) $ 23.22 -6.86%
Seadrill Ltd. (SDRL)                                                  $ 14.66 -8.32%

Have you avoided this sector – you would have been better off to follow our advice in 2014 and now you have to decide for 2015.
No one – and I am not being humble here – can project the future with great accuracy but our clients continue to do very well and we offer that experience to you.

Fees : 1 % annual set up and a performance bonus of 20 % – only if we perform.

You can withdraw your funds monthly if you require an income stream.

Contact information:

To learn more about portfolio management ,asset protection, trusts ,offshore company formation and structure for your business interests (at no cost or obligation)

Email

jackabass@gmail.com OR

info@jackbassteam.com  OR

Call Jack direct at 604-858-3202

10:00 – 4:00 Monday to Friday Pacific Time ( same time zone as Los Angeles).

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

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Star Bulk Carriers ( and the shipping sector)

SBLK : NASDAQ : US$$6.46

BUY ? – not just yet 
Target: US$19.00

Disclosure : Our managed accounts sold all shipping stocks – part of the reason we are 40% cash – see the Year End Review at http://www.youroffshoremoney.com
SBLK is on our watchlist.

COMPANY DESCRIPTION:
Star Bulk Carriers is a global dry bulk shipping company
incorporated in the Marshall Islands in December 2006. The
company is headquartered in Athens, Greece and specializes in
the Capesize and Supramax segments of dry bulk.
All amounts in US$ unless otherwise noted.

 The Shipping Sector NOT A BLACK HOLE

Investment recommendation
We maintain our BUY rating, but are lowering our price target to $19
(from $21). Star Bulk continues to be our favorite name in the dry bulk
space due to its sizeable, modern fleet and low cost basis. We continue
to believe the company will be a beacon for future consolidation in the
industry.

Investment highlights

 Funding gap worries overblown: While a substantial portion of the
company’s capital expenditure requirements have secured
financing, there still remains an estimated $103 million equity
funding gap to be filled through 2016. The recent issuance of $50
million of unsecured notes helped lower that number and give
management time. We believe a combination of operating cash flow
generation, further unsecured notes, or equity-linked securities
could get the company the rest of the way in a manner that
minimizes equity dilution.
 Growth into 2015 and 2016 should remain strong: With 20 of the
34 vessels from the Excel fleet acquired year-to-date, the remaining
14 vessels expected by year-end, and 35 newbuilds by the end of
2016, we expect earnings growth should ramp up in Q4/14 going
into 2015.

Valuation

Based on our expected 2016 year-end balance sheet and fully delivered
fleet at that time, we calculate Star Bulk’s forward, normalized NAV to
be $18.96 per share. As such we believe that SBLK is undervalued and
we maintain our BUY rating, but lower our price target to $19 (from
$21). Our target is based on the average of our two forward NAVs.
In terms of vessel operating expense, we look for the company’s Capesize vessels to run
$6,300 per vessel/day, Post-Panamax vessels to run $5,500 per vessel/day, and the
Supramax vessels to run $5,100 per vessel/day, and we expect those numbers to increase
with inflation in 2015 and 2016. For drydocking, we note that the company expenses
drydocking (instead of capitalizing and depreciating it), which has a tendency to cause
some earnings volatility from period to period. We are expecting drydocking of $8 million
in 2014, $18 million in 2015, and $25 million in 2016. Finally, we look for G&A expenses
(including non-cash stock compensation) in 2014 through 2016 of $33 million, $39 million,
and $43 million, respectively, which equates to $1,000 per vessel/day by 2016 and $6
million of annual non-cash stock compensation. Given our revenue and expense forecast,
we estimate that the company will achieve operating EPS of ($0.13) in 2014, $1.15 in
2015, and $2.06 in 2016, and EBITDA of $27 million, $278 million, and $451 million,
respectively.
Balance sheet: The company ended Q3/14 with $96 million of cash versus $576 million of
debt. Going forward, the company has a fairly large newbuild program that it intends to
finance with 60% leverage. The company has total capital expenditure requirements $1.5
billion, with $934 million due in 2015 and $304 million in 2016. Out of this amount,
banking financing for $687 million is committed, $293 million is under negotiations (nine
ships), and $65 million is targeted (two ships). Equity requirements remaining are $216
million, of which management estimates there is a funding gap of $103 million. The recent
issuance of $50 million of unsecured notes helped bridge a portion of this gap and gives
the company time. We expect the remaining portion to be met from a combination of cash
flow from operations, further unsecured debt, equity-linked, or straight equity, with the
aim to minimize dilution. Based on our model, we assume another $50 million of
unsecured debt is issued later next year.

VALUATION

Our primary benchmark in evaluating shipping company valuations is price/charteradjusted
NAV. This metric takes into account the overall market value of a company’s
assets based on quoted prices from shipping brokers, adjusted for balance sheet items. In
particular, we believe it’s useful to also adjust for any charters that may be above or below
the current market based on a discounted cash flow relative to what we believe is the
consensus market forecast. Given that shipping in general is a highly cyclical industry, we
prefer to normalize NAV based on long-term historical averages, which we use as a proxy
for mid-cycle asset values.
We also supplement our NAV valuation with relative EV/EBITDA multiples. Given the
highly cyclical and volatile nature of the shipping industry, we find EBITDA to be a clearer
and more stable measure of earnings than reported net income. Furthermore, as the
shipping industry is capital-intensive, an EV/EBITDA valuation enables us to compare
companies with varying levels of debt on an equitable basis.
Price/NAV: We’ve calculated Star Bulk’s NAV to be $9.39, based on the Q3/14 balance
sheet and fleet at that time (41 vessels).

Dry Bulk Sector : we are still out of the sector – watchlist only

Dry Bulk Shipping

The dry bulk shipping industry is affected by numerous factors—like world economies’ growth and commodity supply and demand. Considering the various world economies, China’s economic growth rate impacts dry bulk shipper’s movement. China is an important commodity market.

The sell-off

Since the beginning of September 2014, dry bulk shipping companies—like Navios Maritime Holdings Inc. (NM), DryShips Inc. (DRYS), Knightsbridge Shipping Ltd. (VLCCF), and Safe Bulkers Inc. (SB)—have all suffered great losses.

NM fell by 47%. DRYS fell by 42.9%. VLCCF fell by 41.8%. SB fell by 35.8%.

The Guggenheim Shipping ETF (SEA) tracks a variety of major shipping companies worldwide. It fell by 17.8%. It underperformed the S&P 500. The S&P 500 decreased by 4.8%.

Important indicators

Why have these dry bulk shipping companies fallen so much over the last few months? What do the industry fundamentals look like? We’ll use key indicators to help us answer these questions throughout this series.

The dry bulk shipping companies transport dry bulk—like iron ore, coal, and grain—around the world using vessels.

China is one of the largest commodity importers in the world. China’s manufacturing and real estate sector remains a key driver of dry bulk trade throughout the world.

At an industry level, iron ore exports out of Australia and Brazil are key data points to follow. Since coal is used to generate electricity, we’ll take a look at China’s recent thermal power output trends.

To gauge industry players’ sentiment and expectations of the industry outlook, we’ll look at newbuild and second-hand vessel prices. We’ll look at the Capesize and Panamax vessels in particular. We’ll also look at ship ordering activities.

We’ll provide the Baltic Dry Index’s fourth quarter outlook. We’ll also discuss analyst opinions on dry bulks—provided by RS Platou.

We’ll start by looking at the Baltic Dry Index. It’s an Index that reflects the overall rate of transporting dry bulks on water.

Why the Baltic Dry Index is decreasing

Baltic Dry Index

The Baltic Dry Index measures the cost of major raw materials. The raw materials are transported by sea in the global economy. It indicates a strict demand supply price situation. When the cost to move goods by ship is lower, there are less goods to ship.

The Baltic Exchange Dry Bulk Index is a combination of rates for different ship sizes. It factors in the average daily earnings of Capesize, Panamax, Supramax, and Handysize dry bulk transport vessels. Most of the vessel classes that make up the Index are at their lowest level for this time of year—since at least 2006. Capesize ships are an exception. They’re used to carry iron ore or coal cargoes of ~150,000 deadweight tonnage (or DWT).

September performance

The Baltic Dry Index recorded a decreased percentage in trading to 1,063 on September 30, 2014, from 1,151 at the beginning of the month. So far in October, the Index decreased more to 1,029 as of October 6, 2014. Capsizes pulled down the Index by the maximum rate. On a year-over-year (or YoY) basis, the Index recorded a decreased percentage from 2,115 on October 7, 2013. Since October 2, the iron ore ship charter cost—charter cost to ship iron ore—declined the most.

Impact on companies

How the Baltic Dry Tanker Index performs, especially its YoY growth, is one factor that has significant implications for dry bulk companies.

Historical trends suggest strong third and fourth quarters. Investors should watch the Index for any rate of increase.

As a result, the following dry bulk companies—like Star Bulk Carriers Corp. (SBLK), Safe Bulkers Inc. (SB) Baltic Trading Inc. (BALT), and Knightsbridge Tankers Ltd. (VLCCF), and the Guggenheim Shipping ETF (SEA)— could benefit in the short-term.

However, if the YoY changes remain in the negative, then the long-term outlook for these companies will remain in the negative
Company downgrades

Some of the largest names in the sector—including Capesize giant Knightsbridge Shipping Ltd (VLCCF) and Danish owner Norden—have also been downgraded in RS Platou’s recent quarterly report.

Knightsbridge is the largest Capsize owner listed in the U.S. It has been cut to sell from buy. Norden was downgraded to neutral.

Meanwhile, in the weaker dry cargo market, Platou also downgraded Diana Shipping (DSX) and Golden Ocean. It downgraded them from buy to neutral.

Platou analysts, Frode Morkedal and Herman Hildan, said that Knightsbridge is an attractive long-term investment vehicle. In the near term, weaker rates will bring a lower dividend.

Norden was downgraded to neutral. This was a result of the expected marginal rate improvement. It will pull its operating numbers back to black in 2015. However, the numbers won’t be at a level that justifies a higher stock price.

This could impact other companies in the industry like DryShips Inc. (DRYS), Safe Bulkers Inc. (SB), and the Guggenheim Shipping ETF (SEA).

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