Shares of Frontline Ltd. (NYSE:FRO) surged more than 13% by 10:00 a.m. EDT on Thursday after the oil tanker company posted better-than-expected first-quarter results.
On the one hand, Frontline's first quarter was weak since it reported an adjusted loss of $0.08 per share because of lower shipping rates. The oil tanker market has been under significant pressure in recent months because of an increase in tankers on the market at a time when the industry isn't shipping as much oil since it's working to reduce storage levels. However, despite those headwinds, Frontline's net loss did come in $0.09 per share ahead of analysts' expectations.
Furthermore, "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," according to CEO Robert Macleod. In addition to those market improvements, the company believes the industry will increase the number of older oil tankers it scraps, which will help reduce fleet levels. Those factors could help bolster tanker rates, where were just $14,900 per day during the first quarter for very large crude carriers, well below Frontline's cash breakeven level of $22,700 per day for 2018.
Tanker rates could spike back up to $25,000 per day if OPEC changes course on its current strategy and raises production by 1 million barrels per day. However, while there have been some reports that the organization might boost output by that level, a more recent one suggests that this might not be the case. Because of that uncertainty, Frontline's stock could be in for a wild ride until tanker capacity better matches the market's needs.