Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Scorpio Tankers Inc. (STNG) Is Bullish on the Tanker Market, But Is it Right?

Meanwhile, Teekay Offshore Partners L.P. (NYSE:TOO), a owner-operator of shuttle tankers, is finding it hard to turn a consistent profit as day rates vary. During the last four years, Teekay Offshore Partners L.P. (NYSE:TOO)’s net income has fluctuated between $(116) million and $122 million (2012). In addition, during the past five quarters, net income has swayed between $(12) million and $68 million with an average of $28 million per quarter. Furthermore, Teekay Offshore Partners L.P. (NYSE:TOO)’s huge debt pile is strangling the company’s net income, as debt interest alone accounted for 25% of EBIT during 2012.

Scorpio Tankers Inc. (NYSE:STNG) has one of the best balance sheets in the business with low levels of debt and the company’s asset base just keeps growing, but for how much longer? With the company’s fleet projected to more than double over the next few years, based on the number of ships on order, the company will have to find customers to use them.

According to U.K.-based Drewry Maritime Research, global supply in the tanker market still exceeds demand by about 87 million dead-weight-tones and supply is still far outstripping demand as demand for tankers expanded 0.6% during the fourth quarter of last year while supply expanded 1%. In addition, supply is expected to exceed demand by almost 200% during 2013 as new ships continue to be delivered that were ordered back in 2007/2008.

Foolish summary

So, Scorpio is making a huge bullish bet on the tanker market and the company could be right. Whatever the outcome, it would appear that Scorpio is in the best position to make this bet as the company has one of the best balance sheets in the tanker sector and the company has just returned to profitability. For investors who like risk, Scorpio could be a good punt, but risk averse investors should wait for a stronger recovery in the shipping sector.

Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Rupert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Scorpio Is Bullish on the Tanker Market, But Is it Right? originally appeared on Fool.com is written by Rupert Hargreaves.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.