‘Drill baby drill’ – Trump and the tanker market

The with US elections now settled, for the most part, commentators and analysts have been sharing opinions on the implications of the strong showing by Donald Trump and Republican candidates further down the ballot.

During the campaign, Trump was heavily advocating the continued role of fossil fuels production in the States, with “drill baby drill” among his oft-repeated campaign slogans. In the past few years, observers have pointed to likely increases in electricity demand driven by the data-crunching revolution now underway. Seasoned market watchers note that wind and solar power, which have both seen increased capacity in the Biden years, are intermittent, so can’t fully meet the needs from the artificial intelligence and electric vehicle (potentially) sectors.

The incoming Administration has a stated intent of loosening regulations, which ought to increase permitting for oil and gas drilling, for pipeline transmission, for crude oil, petroleum products and for natural gas, and un-pausing approvals for natural gas export projects.

Stamatis Tsantanis, Chairman of Seanergy Maritime (NASDAQ: SHIP), said he expected increased US oil and gas production under Trump’s “drill, baby, drill” mantra that could bolster exports, benefiting tankers.

Related:Why a Trump win could be good news for Asia and shipping

The legislative branch (House of Representatives and the Senate) is also tilting towards the Republican side, so in theory, Trump should see less impediments in implementing his agenda items. This contrasts with the divide such as we’ve seen during the second half of Biden’s term- when progress on most issues, related to energy and nearly everything else, was difficult.

With its headquarters in midtown New York within 10 minutes walking distance from the Trump Tower, consultancy and shipbroker Poten & Partners is well positioned to offer an informed opinion on potential impacts on barrels and molecules moving in the deepsea tanker trades. Analyst Eric Broekhuizen and his team acknowledge, very sensibly, that: “Obviously, nobody knows the answers to these questions…” regarding exact impacts of Trump’s policies on the tanker market, and the broader realm of geopolitics. Instead, Broekhuizen suggests looking backwards to 2017-2020 (Trump’s first term) and at “what he said on the campaign trail.”

Poten notes that: “As Mr. Trump takes office for a second term, he will try to trigger a reacceleration of US oil production growth with further deregulation and making more federal lands available for drilling,” but is quick to point out that: “… it will ultimately be the oil companies who will make the decisions, which will be based on the current market and future outlook.” 

Related:Record low idle box ships, but Trump tariffs could scupper growth

Looking further afield, Poten suggests that the Middle East will receive considerable scrutiny under Trump and that “Iran will be a particular focus of the new US government. It is expected that Mr. Trump will renew his “Maximum Pressure Campaign” which could likely include an embargo on Iran’s oil exports (if the first term is any guide).

Potentially, the US could exert pressure on China, where “teapot refineries” are receiving much of the Iranian crude exports- through the medium of tankers, notably VLCCs,  in the dark fleet, increasingly a target of US regulators when linked to evasion of sanctions on Russian oil) The analysis continues with Poten offering that: “If the US could dramatically reduce Iranian exports, this would give a boost to the tanker market, in particular VLCCs….Iranian barrels would need to be replaced by non-sanction oil from other producers, which would create additional employment opportunities for the mainstream tanker fleet.”

Tsantanis from Seanergy similarly commented, “Strict enforcement of Iranian sanctions might sharply reduce Iranian oil exports, potentially boosting demand for mainstream tankers over the shadow fleet.”

Another pro-VLCC forecast, of sorts, came at end October, the week prior to the US election, from a behemoth in the presently battered product tanker sector- Scorpio Tankers (NYSE- STNG). which recently revealed that it had spent around $90 million on acquiring a stake in VLCC specialist Double Hull Tankers  (NYSE: DHT).

STNG’s CEO, Emmanuele Lauro told participants on its Q3 investor conference call): “In the third quarter, we acquired a 4.9% stake in the crude tanker company DHT, a passive but liquid investment that positions us to capitalize on the upside of an improving crude tanker sector.”

On the same call, STNG’s President, Robert Bugbee, said: “For a few years now, the VLCC market has underperformed itself. It has been a potential negative for the product market because its weakness, along with the crude market, has drawn vessels from the crude into the product at times…Now we're seeing that this is going to change. We see for the first time that this winter is lining up to be a very strong winter for the crude side.”