Frontline Ltd. (NYSE:FRO)’s stock soared more than 100% in just three sessions. The company operates oil tankers and oil/bulk/ore carriers, and the industry is gaining momentum with falling global crude prices. China is leveraging this dip in oil prices to stockpile the crude for its Strategic Petroleum Reserve. Many experts predict favorable conditions for crude tanker movements despite the forecasts of lower crude demand, primarily driven by global oil imports for strategic storage.
Frontline Ltd. (NYSE:FRO) provides transportation of crude oil and oil products, coal and iron ore. The company’s fleet includes 15 Suezmax tankers, addition of one Suezmax tanker to its fleet by January 2015, and 24 very large crude carriers, also known as VLCCs. It further underscores the company’s strong positioning in the long-haul market which it can leverage to address increasing demand from the Atlantic to Pacific. Consolidation in mid-size tanker fleet and increase in tanker ton-mile demand are also expected to drive further growth through 2015.
Frontline’s VLCC tankers transport crude oil from the Middle East Gulf to Northern Europe, the Caribbean, the Louisiana Offshore Oil Port and the Far East. Its Suezmax tankers trade in the Middle East, Southeast Asia and the Atlantic Basin.
Continued fall in oil prices also supports lower bunker fuel prices and ultimately reduces ship operating costs. The company reported that Bunkers at Fujairah averaged $598/mt during 3Q14 with prices fluctuating from $628/mt to $575/mt toward the end of 3Q14. The market rate for a VLCC trading was WS 45 during 3Q14, representing an increase of WS 9 from 3Q13. The flat rate decreased 6.7% YoY in 3Q14. The market rate for a Suezmax trading was WS 71 in 3Q14, representing an increase of WS 15 from 3Q13. The flat rate decreased 6% YoY in 3Q14.
Frontline Ltd. (NYSE:FRO) has witnessed continued strength in the tanker market through 4Q14, which the company is expecting to create some flexibility going forward. The Board of Directors is mulling potential alternatives to restructure the Company’s debt and capital lease obligations. Frontline’s total debt and capital lease obligations was approximately $956 million in November 2014. It would be interesting to see how effectively the company would leverage increasing momentum and strengthen its balance sheet.
Frontline Ltd. (NYSE:FRO) has been in a bear market for a long time now but technically, it is showing the initial signs of a bullish reversal, though it could be too early to conclude if that is really going to be fruitful. The last fall from the early 2014 top has been much smaller than the earlier fall from the 2012 top. A volatility expansion is visible too that can help the bulls if they manage to break the resistance around $3.10-20.