Last year Russia invaded Ukraine and left a trail of chaos and destruction. The U.S. and the EU, in an effort to punish Russian President Vladimir Putin, sanctioned Russian oil and gas. The U.S. also conducted a not-so-covert operation and blew up the Nord Stream 2 pipeline, which was bringing cheap Russian gas to Germany.
Since then Russian oil has been moving by tanker ships halfway around the world to India and China, which did not go along with the Russian oil sanctions.
Furthermore, European demand is now met with United States and South American oil.
Again, this oil must flow across oceans.
Right now there are about 3,500 tankers working the global shipping lanes at the moment. As you would expect, demand for their services far exceeds supply. Tanker rates have shot up much faster than the price of oil. And since only a small percentage of the oil price (less than 5%) is from tanker rates, prices can continue to expand.
A recent report by McQuilling Services, a shipping consultant, has claimed that the world will be 26% short of very large crude carriers (VLCCs) this year.
A VLCC is just what you think it is, a huge 200,000-ton ship that can carry as much as 2.2 million gallons of oil. It is bigger than an aircraft carrier and to rent one costs as much as $250,000 a day. Our analysts have traveled the world over, dedicated to finding the best and most profitable investments in the global energy markets. All you have to do to join our Energy and Capital investment community is sign up for the daily newsletter below.The Best Free Investment You’ll Ever Make
If you are an investor in shipping stocks like my readers in Launchpad Trader, you are a happy camper.
One stock went from $7 a share to $34 and paid a $2.59 dividend last quarter. That’s 31.26% annually. And get this: It still has a price-to-earnings ratio of under 5!
These tanker companies are making so much money they are paying off debt, buying back shares, and literally giving cash away in the form of dividends. All you have to do is take it.
I know what you are thinking… Tanker stock are notoriously volatile. Soon they will order new ships, the demand will go down, and the rates will drop. It’s the classic business cycle.
Yes, that’s true. But here is the thing. First of all, Russian oil pipelines are not going to be rebuilt for the next five years at least. Even if the war stopped tomorrow, they would still have to use tankers.
Secondly, all of the shipyards that build oil tankers are full building container ships. It takes three years to build a giant ship. And you may remember about 18 months ago the world was hit by a huge supply disruption and a shortage of container ships. These were ordered en masse.
Container ships are now being built in all the shipyards across China and South Korea. New VLCCs won’t show up until 2025 at the earliest. And by that time, these tanker stocks could be up more than 500%. The last time there was a supply shortage of this type, one tanker stock went up more than 5,000%.
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Christian DeHaemer Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
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