Product tanker stocks, such as Scorpio Tankers stock (STNG:NYE), are proving to be a bright spot in the energy industry. While natural gas and oil stocks have suffered from declining prices, product tanker companies have benefited from the current market conditions. These companies rent out their ships to transport oil products, and their fixed costs mean that almost all profits beyond these costs flow straight to the bottom line.
The demand for product tankers is also increasing as Russia and Europe find new trading partners and tanker supply constraints mount. The recent EU embargo on Russian oil has resulted in significant increases in the miles traveled by Scorpio’s vessels. This, combined with low orders for new vessels and a massive outflow of investment capital from the energy sector, means that the industry cannot add new capacity to respond to growing demand, resulting in increased day rates.
Scorpio Tankers stock is an excellent pick to play this trend due to its large fleet size, market cap, and primarily spot pricing model. While this presents significant risks, Scorpio has been generating high profits, with a 53.5% profit margin in Q4 2022. The company has also been using its windfall profits to pay down debt and repurchase shares. Investors should note that tanker stocks require careful timing and position sizing, but they have the potential for enormous returns.