Why Scorpio Tankers Stock Dropped Today
Key Points
VLCC oil tanker daily charter rates passed $1 million per day yesterday.
The Baltic Dirty Tanker Index has doubled over the last three weeks.
But what happens if Iran reopens the Strait?
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Scorpio Tankers (NYSE: STNG) stock is on a roll. Shares of the oil tanker operator, which owns 90 tankers of various shapes and sizes, gained as much as 11% in the first two weeks of September. It's giving back some of those gains today -- down 2.6% through 10 a.m. ET.
But why was Scorpio up in the first place?
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Tanker rates rise
Tanker rates are the reason. As StreetInsider.com reports, the cost of chartering a Very Large Crude Carrier (VLCC) supertanker passed $1 million per day yesterday. That's up 5 times from what chartering a supertanker cost before the Iran war began Feb. 28.
Data from the Baltic Dirty Tanker Index (BAID), which doesn't show precise dollar rates but instead uses a "point" system similar to the Dow Jones Industrial Average, nonetheless illustrates the change. The BAID closed just below 2,000 before the war, hit 2,421 at the beginning of September -- and has gone parabolic this month, more than doubling to 5,092.
StreetInsider attributes the rate spike to "a near-shutdown of Hormuz traffic" that is slowing tanker traffic and making it hard to charter VLCCs.
Why is Scorpio stock down today?
So what's changed about this that would cause Scorpio stock to slip today? As Reuters reports, Iran offered over the weekend to reopen the Strait of Hormuz "within seven days" in exchange for the United States Navy lifting its blockade of Iranian shipping.
And what does this mean for tanker charter rates and for Scorpio? This isn't exactly the first time we've heard rumors of an end to the Iran war and a potential let-up of the threats to oil shipping. It might happen this time -- or it might not.
And if it doesn't, you can expect charter rates -- and Scorpio stock -- to go right back up again.
Should you buy stock in Scorpio Tankers right now?
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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