OSLO Dec 20 Crude tanker operator Frontline
expects strong demand for its vessels at the start of
2017 and could benefit from oil producers' pact to cut output if
it forces Asian buyers to go further afield for supplies, its
chief executive said.
Spot rates for very large crude carriers (VLCCs) have
doubled since October to around $70,000 per day, far above the
level Frontline needs to earn a profit, as OPEC output hit a
record in November and seasonal demand for oil kicked in.
"Our all-in break-even rate for VLCCs is below $22,000, so
we're optimistic with regards to our own earnings," CEO Robert
Hvide Macleod told Reuters.
Even though OPEC and non-OPEC producers agreed on Dec. 10 to
curtail output by a combined 1.76 million barrels per day in a
bid to ease a global glut that had sent oil prices tumbling,
Frontline said this was unlikely to hurt its business.
While Saudi Arabia and other Gulf producers have promised to
slash production, key countries to the tanker trade like Nigeria
and Libya were exempt from the plan.
Chinese, Japanese, Indian and Korean refiners are seen
buying more oil from north and west Africa to replace the
shortfall in Gulf output, tying up ships on longer transport
distances and reducing the overall supply of available tankers.
"Asia is the biggest buyer of crude, and the longer journeys
make the impact (from OPEC's cuts) on tanker demand minor,"
Hvide Macleod said.
Frontline warned in its third-quarter earnings report on
Nov. 29 it could experience periods of market weakness ahead,
even as the balance between supply and demand was likely to
"We still expect that, but 2017 seems to be off to a strong
start," Hvide Macleod said.
He estimated an additional 50 VLCCs will be added to the
global fleet of supertankers in 2017, but older vessels are also
being converted to other uses, and some may be scrapped
On Dec. 9, Frontline raised $100 million in a share issue
supported by its biggest shareholder, billionaire investor John
Fredriksen who owns 48.4 percent, and said it would use the cash
to expand its fleet of 73 vessels.
The share issue could also allow the firm to increase its
"Our main focus will be on buying second-hand tonnage or
vessels that have deliveries (from shipyards) soon, rather than
placing new orders," Macleod said, adding that acquiring
competitors was also an option.
He estimated the cost of buying a one-year-old VLCC at
around $79 million, depending on specifications, and dropping by
$2 million-3 million per year after that.
By comparison, ordering a new VLCC for delivery in 2018
could cost up to $85 million when all associated costs were
included, Macleod predicted.
(Editing by Terje Solsvik and Susan Fenton)