Jefferies on tanker shares following U.S. sanctions on Iranian oil exports

Investing.com — Tanker shares rallied sharply on Tuesday after the U.S. Treasury imposed sanctions on 21 extra vessels transporting Iranian crude, together with 10 very massive crude carriers (VLCCs).

The transfer indicators a renewed push to implement sanctions in opposition to Iran, which might considerably tighten world VLCC provide and bolster the tanker market, in accordance with a observe from Jefferies.

Jefferies maintains a bullish outlook on tanker shares, citing engaging valuations, enhancing sentiment, and a stronger winter demand season. The agency highlights DHT Holdings (NYSE:DHT), Frontline (NYSE:FRO), and Worldwide Seaways (NYSE:INSW) as high performs to learn from potential tailwinds within the VLCC market.

The most recent sanctions carry the whole variety of VLCCs below restriction to 35, with an extra 85 vessels on a “watchlist” for doubtlessly carrying Iranian oil. These 120 ships account for almost 14% of the worldwide fleet of 850 buying and selling VLCCs, representing a considerable capability danger if additional enforcement escalates.

Iran’s crude exports have risen to 1.7 million barrels per day (mb/d) in 2024, a pointy improve from 0.3 mb/d between 2019 and 2022, fueled by muted sanction enforcement and reliance on shadow fleets. Most of those exports head to China, pressuring different producers like Saudi Arabia, whose exports have declined to six.0 mb/d in 2024 from 6.5 mb/d in 2023.

Jefferies views the sanctions as a possible catalyst for the tanker market. Proscribing Iran’s shadow fleet might scale back VLCC availability whereas driving demand for sanctioned-free vessels to fulfill world crude transportation wants. A repeat of 2019’s market dynamics, when U.S. sanctions on Chinese language agency COSCO eliminated 50 VLCCs from buying and selling and despatched charges hovering above $200,000/day, could also be on the horizon.

Ought to sanctions additional constrain Iran’s crude exports to ranges seen from 2019-2022, world tanker utilization might rise from 85% to 95%, considerably tightening market circumstances.

The mixture of stricter sanctions, lowered VLCC provide, and elevated demand for non-sanctioned crude transport creates a good risk-reward dynamic for tanker equities, in accordance with Jefferies.