Frontline sees signs of turnaround in ‘muted’ tankers market

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Norwegian shipper Frontline said the tanker market was currently “muted” but noted signs of a recovery to come, as it reported fourth quarter and full year 2020 results Feb. 19.

Interim CEO Lars Barstad said that in 2020 his group recorded its strongest result since 2008, but that the fourth quarter of the year reflected the challenging conditions tanker markets were experiencing as a record volume of oil inventories are drawn.

Barstad said that global oil demand is growing firmly and all leading commodity markets are pointing towards a strong recovery for the world economy in 2021.

“Demand for tankers is currently muted as the total volume of oil transported is capped. There are indications we may be near the end of the inventory draw cycle as OECD stock levels are approaching five-year averages,” he said.

The Frontline boss added that the strong development in oil prices implied real demand returning, most notably in Asia which was close to pre-COVID-19 levels.

“When global oil markets switch from drawing on inventories, to call on equal volumes from the marketplace, growing demand for freight should be expected,” Barstad said.

“At this point in the curve, we believe Frontline is well positioned to capture a recovery for tankers with our low cash breakeven levels and a spot exposed fleet of modern fuel-efficient vessels.”

Frontline posted net income of $412.9 million and adjusted net income of $421.6 million for 2020 — its strongest annual performance since 2008 — despite recording a net loss of $9.2 million for the fourth quarter of 2020.

The company said the Q4 result was was driven primarily by a decrease in its time-charter equivalent earnings from $170.2 million in the previous quarter to $94.8 million in the current quarter due to lower TCE rates achieved across its fleet.

Reported spot TCEs for VLCCs, Suezmax tankers and LR2 tankers in the fourth quarter were $17,200, $9,800 and $12,500 per day, respectively.

For the first quarter of 2021, Frontline estimated spot TCE on a load to discharge basis of $22,600 contracted for 78% of vessel days for VLCCs, $17,800 contracted for 68% of vessel days for Suezmax tankers and $12,200 contracted for 65% of vessel days for LR2 tankers.

“We expect the spot TCEs for the full first quarter of 2021 to be lower than the TCEs currently contracted, due to the impact of ballast days at the end of the first quarter as well as current prevailing freight rates,” the company said.

CFO Inger Klemp said the company’s newbuild program was fully funded with a new term loan facility for up to $133.7 million.

She added that Frontline’s estimated daily cash breakeven levels for 2021 of $21,600, $17,800 and $15,600 for VLCCs, Suezmax tankers and LR2 tankers, respectively, provided significant operating leverage and helped to protect its cash flows during periods of market weakness.

Source: Platts

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