Frontline Surges Amid Signs of Oil Storage at Sea

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January 9, 2015

VLCC “Front Page”. Photo courtesy Frontline Ltd.

Naomi Christie

(Bloomberg) — Frontline Ltd., the oil tanker company led by billionaire John Fredriksen, surged in Oslo trading amid speculation that a plunge in crude prices is spurring demand for the vessels to store cargoes.

The company’s shares advanced as much as 13 percent, or 3.3 kroner, and were up 8.8 percent to 28.5 kroner ($3.72) at 1:30 p.m. in the city. Traders may park as much as 60 million barrels of oil on tankers in the coming months, according to JBC Energy GmbH, a Vienna-based consulting firm that advises governments.

Crude oil plunged 48 percent last year amid an oversupply that Qatar estimates at 2 million barrels a day, or about 6.7 percent of OPEC’s output. The decline helped deepen what’s called contango, where oil prices for later this year are above those now. When that gap gets wide enough, it can reward traders to purchase cargoes now, store them, and lock in the sale price on futures markets.

“It looks more and more likely that you’ll see more floating storage and it’s going to be good,” Eirik Haavaldsen, a shipping analyst at Pareto Securities SA in Oslo, said by phone. “The re-emergence of floating storage is what could move the crude tanker market this year from being rather good to possibly very very good.”

Frontline’s shares have gained 47 percent this week, valuing the company at 3.2 billion kroner. They fell as low as 7.5 kroner in September.

Very large crude carriers will earn an average of $35,000 a day this year, according to the average of six analysts estimates compiled by Bloomberg in December. That would be the most since 2010, data from Clarkson Plc show. The firm is the world’s largest shipbroker.

Copyright 2015 Bloomberg.

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