Frontline bullish on tanker demand

The world’s largest oil tanker operator said on Thursday that a fall in the cost of chartering tankers was only temporary and demand would rally.

Frontline, the cornerstone of the shipping empire of John Fredriksen, attributed recent sharp drops in charter rates for tankers to temporary effects such as disruptions to supply in west Africa and reduced US demand.

Mr Fredriksen also blamed the Olympic games in China for a slowdown in economic activity there because of factory closures. Rates to charter very large crude carriers (VLCCs), one of the biggest classes of oil tankers, have fallen from about $190,000 a day in late July to less than $50,000 a day.

The fall comes after rates have been at near-record highs for much of the year.

“The market has during the last weeks shown a temporary negative development,” the company said.

Future demand for tankers could be boosted by a trend towards running ships more slowly to conserve fuel, which increases the need for ships, build-ups in oil inventories and strong world oil production, the company added.

“These factors will all positively affect the demand for tankers,” it said.

Record first-half income and bullish statements about future prospects could not prevent the company’s shares falling more than 7 per cent at one point during trading.

Frontline said it expected good results for this quarter but they would depend on the future direction of the market. The shares appeared to be affected by the note of caution and news that seven vessels will need dry-dock maintenance during the quarter. They closed down DKr18.50 at DKr295.

Frontline, with 77 large tankers, owns far more tonnage than any other operator. Its largest shareholder and chairman, Mr Fredriksen, is also the world’s most powerful shipowner.

First-half net income was a record $539m on turnover of $1.1bn, against a restated net income of $347m on $692m turnover for the same period last year.

Some $192m of the first-half net income was the result of gains on sale of vessels or shares, while the company also received $16m in a legal settlement and saw a $12m gain in the second quarter on a contract it holds to buy shares in the US-based Overseas Shipholding Group, where it controls a 4.9 per cent stake.

The company said that average earnings per day for its VLCCs in the second quarter – including long-term chartered vessels as well as those on the short-term spot market – were $86,300, against $82,400 in the first quarter and $51,300 in the first half last year.

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