Euronav NV - Large crude tanker fleet and high spot exposure to drive a rally in the stock

The crude tanker market remained volatile in 2022 YTD. The year began on a sluggish note amid the Omicron-led demand concerns and high oil prices, which limited seaborne trade. However, the market dynamics turned favourable for shipowners after the Russia-Ukraine conflict led to high spot TCE rates of crude tankers in general and of mid-sized crude carriers, in particular. This supported the uptrend in the Drewry crude tanker equity index that registered a gain of 29.2% between the last week of February and the first week of June. The index declined between the second week of June and the first half of July due to seasonal weakness and normalising spot earnings of mid-sized tankers, especially in the Black Sea and Med before trending upwards again from the second week of July on the back of strong and rising vessel earnings in the spot market. Cumulatively, the index registered a growth of 113.3% YTD. Trending in line with the broader tanker market, the stock price of Euronav NV (EURN) surged 108.9% YTD, as strong spot TCE rates on several major trading routes supported the rally in tanker shipping stocks. EURN’s stock and the index largely followed a similar trend as the company’s market cap accounts for nearly 39% weightage to the index. EURN and Drewry crude tanker equity index has outperformed the S&P 500, which dropped 17.2% since the beginning of the year.

We believe the seasonal weakness in spot rates in 3Q22 will lead to some correction in EURN’s stock price in September before it trends upwards again in 4Q22 on the back of strong vessel earnings and high seasonal demand. However, a potential global economic slowdown or recession could be a downside risk for the company.