Frontline Back in Black on Chinese Oil Demand: Freight Markets
Frontline Ltd., the world’s biggest supertanker operator, may return to profit this quarter after its biggest loss since 2002 as oil demand from China curbs a glut of vessels that sent freight costs to a 13-month low.
Daily returns on the benchmark Middle East-to-Asia route rose sixfold to $42,726 in a month as oil buyers booked the most vessels since at least 2005, according to data from the Baltic Exchange and Galbraith’s Ltd., a shipbroker in London. Traders of forward freight agreements, used to speculate or hedge, were anticipating rates of $17,285 as recently as three weeks ago.
The derivatives still aren’t pricing in a sustained rally, with fourth-quarter contracts at $25,096, below the $30,100 Frontline needs to break even. Rates had been unprofitable since November as vessels from the biggest building program in history left yards. This month’s gains suggest the glut isn’t as large as some analysts estimate, said Doug Mavrinac of Jefferies & Co. in Houston, who correctly predicted a rally in 2009 and expects second-half rates to average $50,000, 17 percent more than now.
“There’s a clear increase in oil being shipped from both the Middle East and West Africa and a lot of that is heading for China,” said Jens Martin Jensen, the Singapore-based chief executive officer of Frontline’s management unit. “The way the market jumped is a clear sign to me that there’s no weakening of Chinese demand.”
The Hamilton, Bermuda-based shipping line, chaired by billionaire John Fredriksen, reported a fourth-quarter loss of 15 cents a share today, the worst for any quarter since 2002. The rebound in rates means Frontline is already profitable again and will make 20.8 cents a share in the three months ending March 31, the mean of six analyst estimates compiled by Bloomberg shows.
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