There was a great piece on Bloomberg.com today about how super tanker rates are coming back… and I want to elaborate on that to teach you how to decide which stocks to buy… what does a tanker turnaround look like… remember the tanker business is a business not about the price of oil… at least not directly… crude is not the most important factor here… the supply and demand for tankers is… and right now we are coming out of a period where there has simply been a glut of ships… even with all the work that has been done to take them off the markets… by some of those more enterprising Somali pirates.

But in the last weeks spot rates, the rates for immediate payment for tankers, have been climbing in certain markets… where the largest tankers going from the Middle East to the East, rates rose by about 40% in a week… the rates for these ships have been taken down so far that they can jump that much… and still have a lot further to go without getting anywhere remotely considered expensive… the spot rate for tankers going from the Middle East to the West went up around 18%… and rates from West Africa going to the Gulf are up about 18%… the upside is enormous… and I am telling you that this is just the beginning.

Why do I think that this business will get even better… not only have ship owners been delaying new orders, but they also could be set to scrap single hull tankers… that is 110 ships as soon as next year… 110 ships could be taken out of the market… because single hull tankers are more likely to cause oil spills… because the coming bank on single hull tankers and the overall turmoil in the market… the global market fleet could be reduced by about 20%… this is basic stuff… it is Ak10 stuff… and it is ego 10 stuff… because of the environmental worries we are lowering the supply of tankers… and when you lower the supply of tankers that means all else being equal, tanker rates go higher.

It also looks like 20 orders for super tankers will be delayed each thru 2012... 14 orders being cancelled… no new supply on them… the last sign of a tanker bottom that I want to mention before I show you how to pick a tanker stock is something that is not related to oil… it is the Baltic Dry Index, and that has moved up decisively… now this Index of Dry Bulk Carriers, which means stocks that carry things like grain and iron ore, not oil… is not directly related to the oil tankers… but we have to take notice that the Baltic Dry Index is up 27% from the beginning of the month… that is a clear sign of higher shipping demand for everything…mostly to China, which by the way is where a lot of the oil is going.

So how do we play the tanker come back… you know that Nordic American Tanker (NAT) has been my favorite in the group… but tonight cause I think that the turn is going to be big… I want to take a more empirical approach to rating these stocks… we want to find the tanker companies that have done well regardless of how the market has been… to do that we went and compared the total returns of the top 10 largest stocks over the last 5 years… Jeffries Trend did this too, that is where the idea came… and it was actually triggered by something that Nordic American Tankers told me.

One of the winners… Frontline Ltd. (FRO)… came in first… it used to be the one that I recommended before things fell out of the bottom here… Frontline is up 180%… Nordic American is second up 99%… these two left everybody else in the dust… the number three, Tsakos Energy (TNP) was a very distant third up 32%… Frontline and NAT have created the most long term value for their shareholders… they are the ones to use in order to play the coming tanker bottom… you can really take your pick from these two… Frontline has the largest tanker fleet in the world with 44 very large crude carriers, 29 smaller Suez tankers, that means that they can fit thru the Suez canal, 8 combined carriers, and 18 new builds coming up… Nordic American is a smaller company… just 13 Suez max tankers and two new builds.

Frontline has more of an emphasis on time charters… 40% of its fleet has been chartered out for 2009, 31% for 2010... so that means that there is not going to be a lot of variation… NAT is much more focused on these day rates, these spot rates… with only 8% of its 2009 fleet under charter, none under 2010... talk about a wild card… this means that NAT is more of a player on a bottom in tanker rates… Frontline has already contracted out much of its fleet… but if rates start going up NAT will be able to do a better job of taking advantage of them.

Now, I think that NAT has more of an upside… but while you will not get as much of a move up in Frontline, it should give you more stability in case we are wrong about the tanker come back… oh and don’t forget, these tanker stocks they love to pay huge dividends… right now NAT yields 8.25%… Frontline 5.7%… those dividends could even go much higher as the tankers rebound.

Now, the bottom line…