Frontline sees tanker demand rebound in 2021

Norwegian tanker owner Frontline made its highest first-quarter profit since 2008, buoyed by soaring freight rates in the wake of Saudi Arabia's brief battle for crude market share with Russia and others. But the company has warned that its time charter equivalent (TCE) rates are likely to be lower in the current quarter and will remain under pressure in the short term.

"The tanker market has corrected downwards in recent weeks and faces pressure in the short term, both from [crude] production cuts and inventory draws," chief executive Robert Macleod said.

The market could switch away from floating storage if crude inventories are drawn down quicker than initially forecast, the company said. A stockdraw will reduce demand for seaborne trade, although Frontline points out that the size of the available fleet could shrink over the next 12 months as regularly scheduled dry-docking has been delayed for a significant part of the world's fleet because of the Covid-19 pandemic. This could alleviate some of the downward pressure that sliding demand will have on freight rates, Frontline said.

The company expects more days in ballast and lower spot freight rates in the second quarter, which will translate into lower TCE rates. But looking further ahead, it expects the tanker market to rebound next year as demand for crude recovers gradually over the next 18 months to reach 100mn b/d during 2021.

Frontline's profits rose to $165.3mn in January-March, up from $45.5mn a year earlier. The average TCE rate for the firm's very large crude carriers (VLCC) was $74,800/d in the first quarter, up from $58,000/d in the previous three months. The average TCE rate for a Suezmax rose to $57,800/d from $38,200/d over the same period. And Frontline's clean Long Range 2 (LR2) vessels had an average TCE of $31,200/d in January-March, compared with $29,800/d in the previous quarter.

The company saved around $7.6mn from delaying four scrubber installations. Scrubbers allow vessels to keep burning high-sulphur fuel oil without breaching the IMO's new sulphur cap. The decision to push back the retrofits was driven by strong freight rates and a narrowing in the spread between high- and low-sulphur fuel oil prices, which have extended the payback time of installing a scrubber.

Frontline paid $4.8mn to TFG Marine for bunker fuel procurement during the first quarter. TFG is a marine fuel supply joint venture that was set up in January between Norwegian dry bulk firm Golden Ocean and subsidiaries of trading firm Trafigura. Frontline owns 15pc of the joint venture.

As of 31 March, the company's fleet consisted of 70 vessels. They comprised 14 VLCCs, 26 Suezmax tankers, 18 LR2/Aframax tankers owned by the company, two VLCCs under finance leases, two VLCCs chartered in, seven more vessels under management and one VLCC recorded as an investment in the finance lease.

By Nikos Kokolinakis and George Collard