Shares of oil tanker companies that operate between the U.S. and the Middle East rose sharply on Tuesday after news broke that production out of Alaska's Prudhoe Bay may not normalize until 2007.
Shares of Frontline Ltd. jumped $2.83, or 6.9 percent, to $43.65 in afternoon trading on the New York Stock Exchange. Bahamas-based Teekay Shipping Corp. advanced $1.85, or 4.2 percent, to $45.90 on the NYSE, while shares of Knightsbridge Tankers Ltd. added $1.29, or 4.4 percent, to reach $30.96 on the Nasdaq.
The activity came on the heels of a monthly oil price forecast from the Energy Information Administration that said production reductions from Prudhoe Bay could last until February.
Oil company BP PLC announced late Sunday that it discovered corrosion so severe that it will have shut down production and replace 16 miles of pipeline at Prudhoe Bay, which produces about 2.6 percent of the nation's daily supply including imports, or about 400,000 barrels a day.
Besides tapping stockpiles, the government's energy statistics unit said the U.S. could replace those volumes with imports from Saudi Arabia.
But John Kartsonas, an analyst with Citigroup, said in a research note on Monday that he's doubtful the cutbacks in Alaska will lead to any significant increase in day rates for very large crude carries, supertankers that move most of the oil out of the Middle East. Kartsonas thinks Prudhoe Bay's output will be made up by oil from non-Middle East sources, primarily South America, Asia and the U.S. Gulf Coast.
Omar Nokta, a senior analyst with Dahlman Rose & Co., said investors are responding nonetheless.
People are predicting rates will go higher, he said.
In fact, Nokta said that by Tuesday morning several vessels had already been reserved for charters from the Middle East to the West Coast, which is expected to bear the brunt of the shutdown's impact. Rates haven't gone up yet, he added, but a voyage from the Persian Gulf to the West Coast would tie up a vessel for 70 days and almost certainly tighten supply.
It bodes well for tanker companies, he said.
Elsewhere in the sector, General Maritime Corp. gained $1.69, or 4.5 percent, on the NYSE, and OMI Corp. picked up 87 cents, or 3.8 percent, to reach $23.71 on the Big Board.