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Pros: 'These' Oil Names Won’t Climb with Crude

Monday, 25 Oct 2010 | 6:07 PM ET

If you're betting on higher oil , hopefully you're not playing it with these stocks. Karen Finerman doesn't think the trade will work.

She's talking about the tanker stocks.

Oil has had a nice run over the last month with some analysts even calling for $100 per barrel. Since higher oil is a sign of global growth it's easy to think that tanker stocks - that is the companies that move the oil - will benefit from the march higher.

However, that's probably not the case.

"Tanker stocks are not correlated to the price of oil," Finerman says, "Instead it’s with the quantity of oil that is needed to be moved around the globe."

And even though both price and demand have increased over recent months – day rates have moved down dramatically.

"There’s been a 90% reduction in day rates. It’s staggering." Finerman says.

Finerman's Fine Print: Tankers Going Down
Karen Finerman explains tanker rates are going down.

A published report on Bloomberg confirms Finerman's thesis. "Shipping companies are making $3,826 a day for a single voyage, 88 percent below the breakeven point of $30,900 -- the amount that tanker giant Frontline says it needs to break even.

That’s because the supply of ships available relative to the amount of oil needed to be moved is out of balance.

"Rates are so far below where the operating break even is – it’s really a big problem," Finerman says.

And we haven't seen older ships come off the market yet. "The supply demand dynamic is just out of whack."


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Trader disclosure: On Oct. 25, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Seymour owns (AAPL), (BAC), (F), (NOK); Finerman owns (AAPL); Finerman & Finerman’s Firm owns (BAC); Finerman owns (GOOG); Finerman & Finerman’s Firm owns (JPM); Finerman’s Firm owns (HPQ); Finerman’s Firm owns (MSFT); Finerman’s Firm owns (SKS); Finerman's firm is short (IJR); Finerman's firm is short (MDY); Finerman's firm is short (SPY); Finerman's firm is short (IWM); Finerman’s firm owns S&P 500 puts; Finerman’s firm owns Russell 2000 puts; Terranova owns (APA), (AAPL), (AXP), (C), (GOOG), (GS), (IBM), (ISRG), (MCD), (MDT), (MMM), (NKE), (ORCL), (OXY), (PEP), (PFE), (PCP), (UPL), (VRTS), (XBI); Weiss owns (QCOM), (AKAM), (VZ), (TXN), (COP), (NIHD)

For Gary Kaminsky
***No Disclosures***


For Joe Terranova
Terranova is chief market strategist of Virtus Investment Partners, LTD.
Virtus Investment Partners own more than 1% of (ABAX)
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For Peter Schiff
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For Chris Raymond
Robert W. Baird & Co. makes a market in (AMGN)
Robert W. Baird & Co. intend to seek investment banking compensation from (AMGN) within the next 3 months

For David Sackler
Moab Capital Partners Owns (RGS), (RGR)


For Bill O'Donnell
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Cantor Fitzgerald makes a market in (EXPE)

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