Fears about a Suez Canal shut down sparked a rally in tankers.  While all three major U.S. indices took big hits, with the Dow leading the way down losing 2.5% to 11,824 points, a few stocks were spiraling upward on the news that chaos was engulfing the Northern African nation of Egypt. Oil tankers such as Overseas Shipholding Group (NYSE:OSG) gained handsomely on the possibility that the Suez Canal could be forced to shut down. The NASDAQ had fallen 2.5% to 2,687 while the S&P 500 shed 1.8% to 1,276.  Civil unrest in Egypt had already sent a shock wave through different markets. Apart from rocking US indices, Egyptian violence sparked a jump in oil prices during Friday January 28’s trading session (Read Egyptian Civil Strife Sends Oil Close To $100 On Suez Canal Fears).  While most equity-related assets got battered, a select group of stocks, oil shippers, were corking champagne bottles. Apart from Overseas Shipholding, Frontline Ltd. (NYSE:FRO) had a killer day, gaining 7.8% or $1.96 to $27.10.  An analyst for a shipping hedge fund explained that the spike is connected to fears surrounding the continued operations of the Suez Canal, amidst social unrest caused by massive riots against President Hosni Mubarak’s 30 year rule. “While Suez closure is not much of a threat, shippers are refusing to load in the Red Sea and transit the Canal,” explained the trader. “What’s probably going to happen is that they re-rout ships to the Cape [of Good Hope],” he noted.  “[Re-routing] makes voyages longer, which ties up ships and in turn diminishes supply,” said the analyst, “[this] is positive for the tanker market.” The analyst suggests Teekay Tankers (NYSE:TNK). With a large fleet of aframaxes (oil tankers with a capacity inferior to 120,000 metric tons deadweight) and suezmaxes (largest ship measurements capable of transiting the Suez Canal), “[TNK] has plenty of exposure to the spot market, so it can benefit from a rally in the physical tanker market,” he noted. “It can pay a dividend of 80 cents to $1.10 per share this year and it’s ripe for a catch up rally,” he concluded.  A piece in the Journal notes that volatility in these stocks could be increased by the large number of shares being shorted. “Overseas’s short interest represents nearly 19% of its float, Frontline is at 12%,” reads the article. The article also notes that the rally hasn’t extended to other areas of the shipping world. Dry Ships (NASDAQ:DRYS) and Genco Shipping, two plays on the dry shipping market, gained 0.8% and 0.2% respectively during Friday’s session. (Read Shipping To Suffer Despite Record Trade In Iron Ore).  With Egyptian authorities forcing mobile phone and internet providers to cut off communications, information has been hard to come by. (Read Parmy Olson’s Egypt Goes Dark, Cuts Off Internet And Mobile Networks). Hacktivists and other groups have been trying to offer Egyptians internet access via fax machines and dial-up servers (Read Andy Greenberg’s piece Amid Digital Blackout, Anonymous Mass-Faxes WikiLeaks Cables To Egypt).
Oil tanker stocks surged on Friday January 28 as mounting civil unrest in Egypt sparked a fear-led rally to secure positions around a possible shut down of the Suez Canal.