Frontline Sees Financial Difficulties for Vessel Owners

Slowing demand for oil tankers may lead to financial difficulties for ship owners, according to Frontline Ltd. (FRO), the world’s largest operator of supertankers.

An increase in oil-tanker earnings, spurred by demand for crude from refineries in Asia this month, is expected to be “short-lived,” the Hamilton, Bermuda-based company said today in a statement. Frontline reported a third-quarter loss of $49 million and said it won’t pay a dividend for the period.

Earnings for very large crude carriers plying the benchmark route to Japan from Saudi Arabia climbed to the highest since May this month, according to data from the London-based Baltic Exchange, a publisher of over 50 maritime routes. Daily rates slumped 4.2 percent to $16,843 today. The VLCC fleet will expand 5.7 percent next year, above demand growth of 3.9 percent, according to Clarkson Plc (CKN), the world’s largest shipbroker.

Frontline expects operating result in the fourth quarter to improve compared with the third quarter. Frontline declined 2.8 percent to 19.02 krone ($3.34), the lowest since Nov. 13, by the close in Oslo trading today.

The exchange’s assessments don’t reflect speed cuts aimed at reducing fuel costs, vessel owners’ largest expense. They can boost returns by slowing ships on return journeys after unloading cargoes. Each ship can hold 2 million barrels of oil.

The price of ship fuel, or bunkers, fell 0.2 percent to $616.03 a metric ton, figures compiled by Bloomberg from 25 global ports showed. That’s the lowest since Nov. 14.

Rates Decline

Charter rates for the largest tankers on the voyage to Asia fell 2 percent to 47.94 industry-standard Worldscale points, exchange figures showed. That’s the lowest level since Nov. 13, according to data from the bourse.

The Worldscale system is a method for pricing oil cargoes on thousands of trade routes. Each individual voyage’s flat rate, expressed in dollars a ton, is set once a year. Today’s level means hire costs on the benchmark route are 47.94 percent of the nominal Worldscale rate for that voyage.

The Baltic Dirty Tanker Index, a gauge of costs to transport crude that includes vessels smaller than VLCCs, lost 0.4 percent to 705, the exchange’s data showed.

To contact the reporter on this story: Rob Sheridan in London at rsheridan6@bloomberg.net

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net

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