During Frontline’s (FRO) 1Q17 conference call on May 30, 2017, Robert Macleod, Frontline’s CEO, commented on the crude tanker industry’s condition: “Notwithstanding near-term pressure on crude tanker rates, we believe the market will ultimately return to balance as demand for crude oil continues to increase and vessel scrapping will begin to offset the negative effect of newbuilding deliveries.
“The recent market weakness and other factors have contributed to a historically low asset price environment.”
During its 1Q17 conference call, Frontline (FRO) management gave its insights into the outlook for the crude tanker industry. These insights could help investors assess the outlook for Frontline (FRO) as well as its peers Teekay Tankers (TNK), Nordic American Tanker (NAT), Tsakos Energy Navigation (TNP), DHT Holdings (DHT), and Euronav (EURN).
Frontline’s (FRO) management expects that vessel scrapping could accelerate throughout the year. The global fleet has a significant amount of older tonnage. Due to the implementation of the 2004 Ballast Water Treatment Convention, many companies expect to scrap their older tonnage.
FRO’s management noted that many companies expect to dry dock their vessels to defer the cost of compliance with the Ballast Water Treatment Convention. This action could temporarily remove supply from the market. This trend allows the company to see an improved market in 2018 as newbuild deliveries slow down and vessels are scrapped.
New trade routes have evolved with the implementation of the OPEC and non-OPEC oil production cuts. Long-haul voyages, especially from the Atlantic Basin to Asia, have increased as oil demand from China and India grow. These countries are importing oil from alternative sources due to the OPEC production cuts as a way to diversify their crude supply. This trend has increased the ton-mile demand, which is positive for crude tankers.
Frontline (FRO) noted that in general, it “maintains a cautious near-term view on the tanker market and believes the market will begin to balance as vessels are absorbed into the global fleet and older vessels retire from trading.”