Does Frontline Ltd. (NYSE:FRO) Really Belong To The Front Line?

Stock of Frontline Ltd. (NYSE:FRO) rallied supported by oil price surge and the company’s update about its potential share sales. The company involved primarily in operation and ownership of oil tankers was the ultimate beneficiary of the rising oil prices. As the oil surge rolled over on Monday, there has been growing optimism that oil prices have bottomed out. Such thoughts are driving oil based companies.

Have analyst identified a strong buy signal for FRO?

Oil Price Soar

After rising sharply on Friday, the Brent crude further climbed up by 1.3% to $53.64 per barrel while US oil also surged 1,7% to $48.52. The movement in the oil prices are encouraging but how it will help Frontline Ltd. (NYSE:FRO) business is doubtful. In fact, the oil price rise on the back of anticipated fall in oil output is likely to harm Frontline more than good. Decreased output will lead to more drilling of oil in the U.S., which will cut down the imports, a negative for Frontline.

Share Capital

Keeping this fact aside, another announcement that could be responsible for Frontline Ltd. (NYSE:FRO)’s rally is its management declaration of an increase in its share capital. The press note said that the company issued 10 million shares in excess during January, pursuant to its amended and restated market equity distribution agreement on January 21, 2014. As a result of this increase in share capital, the company will get more liquidity. While the recent amendment to Equity Distribution Agreement will allow, the company to increase share sale from $100 million to $150 million.

Amid all such developments, it is still not certain as to how the company is on a profitable track. The rally in the shares of the company is not backed by solid proof reasons, which should caution investors at this point of time. It is to be noted that the shares of Frontline Ltd. (NYSE:FRO) inched up by nearly 13% in the last trading session, rising by 3.08% to $2.69 during the pre-market hours.



To clearly see the technical nuances of Frontline Ltd. (NYSE:FRO) price action, the log scale needs to be applied to the charts as the difference between the highs and lows is too large and that hides many important details in the lower sphere. Using the log scale, a false breakout is seen in January 2015, suggesting a lot of weakness and the probability if a retest of the lower boundary of the channel near $1 in the coming days.

About the Author

Terrel is US Markets Daily’s business news reporter. She joined US Markets Daily after five years as a print reporter.

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