Seeking Alpha

Tanker rate slump signals retreat in U.S. oil imports; Frontline seen suffering

  • The biggest slump in tanker rates since January is signaling weaker U.S. oil imports and spurring analysts to predict a 15-year low for shares of Frontline (FRO -1.9%).
  • Rates for the biggest crude carriers sank 68% in the past two weeks, more than reversing their advance since the end of June; the rise is seen as a blip, as the U.S. meets the highest share of its own energy needs in three decades.
  • Rates for VLCCs, each hauling 2M barrels, fell to $7,954/day on Aug. 2 after rising as high as $24,493 on July 12; earnings last exceeded the $25.5K that FRO says it needs to break even in November.
  • While U.S. oil production is bearish for crude tankers, it’s boosting demand for ships to export refined products, chemicals and liquefied petroleum gas; Scorpio Tankers (STNG) is expected to benefit.
Comments (4)
  • These rates are even more volatile than 3x leveraged ETFs! Wow!
    6 Aug 2013, 01:16 PM Reply Like
  • The day rates are wildly erratic. While the VLCC rates have been down the last several days the Suezmax have been up. Watching these rates as a trading tool can be very frustrating.
    6 Aug 2013, 02:40 PM Reply Like
  • One can't help to wonder how the outlook for the VLCC segment is going to be? I mean, with the shortfall of US cargoes (assuming domestic production growth persists) a fair amount of ton-mile is leaving the market. Certainly there will continue to be a steady flow of Asia destined cargoes out of the AG, but hardly enough to justify the current fleet size?

     

    Additionally, I can't help to wonder what Fredriksen's (next) VLCC move will be? Thus far he hasn't touched a single super tanker since 2009, AFAIK. My best guess would be an aggressive M&A sweep buying out existing tonnage when prices are closer to steel scrap, as new orders would choke rates/vessel prices and suppress the hands down most distressed segment further. My bet is that widespread consolidation is more likely than an eco-niche newbuild buying spree and a two-tier market creation as has been the trend in other segments.

     

    It also strikes me that STNG appear to have outsmarted FRNT in the LPG/VLGC and product tanker segments, effectively side-sweeping the markets as a first-mover through occupying the best yard slots.

     

    Can't wait to see how all this plays out. Exciting times in tanker shipping.
    6 Aug 2013, 02:47 PM Reply Like
  • Not every vessel is on spot, so watching the chart only tells you one segment. It can help to look at the reports from the companies, if they share average rates.

     

    http://bit.ly/pP4Dqz

     

    There are other indexes for rates. Weekly reports also come out with more details.

     

    Basically, still too many ships, and much more scrapping is needed. As steel demand slowed in China, that took some pressure off scrapping activity, though that may recover in the next year.
    6 Aug 2013, 08:47 PM Reply Like
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