Frontline Ltd (NYSE:FRO) stock was up on Thursday following the company’s outlook for 2018.
Frontline Ltd positive outlook for the year has to do with the number of VLCC oil tankers that are being scrapped. The company notes that 22 VLCCs have been scrapped already in 2018. It also notes that there are several others that have been sold for near-term scrapping.
Frontline Ltd says that owners of older tonnage are disposing of older vessels at record rates due to high scrap prices and low demand for oil tankers. The company says that this will likely result in a negative fleet growth for 2018, even as it prepares to ship between 40 and 45 new oil tankers out.
While this may seem like bad news for Frontline Ltd, the company says this isn’t the case. FRO says that it is expecting the current crude inventory cycle to end. If this happens, inventories will likely begin to stabilize and start seeing growth again. This could result in higher demand for oil tankers and would be good news for FRO stock.
“The spot rate environment was weak in the first quarter as inventory draws impacted a freight market that was already suffering from high fleet growth,” Robert Macleod, CEO of Frontiline Ltd, said in a statement. “While there are encouraging signs that seaborne crude volumes may soon increase as a result of changes by OPEC and a slowing trend of inventory draws, the market is not yet factoring in upside potential.”
FRO stock was up 9% as of noon Thursday.
As of this writing, William White did not hold a position in any of the aforementioned securities.