Thursday's spike in Frontline
Around the time I reviewed the first-quarter results of Nordic American Tanker
Not everyone is celebrating the group's buoyancy. Citigroup
If that's the case, why has Frontline, the bellwether of the group, ramped higher in the past week?
Ignore the recently resurfaced buyout rumors involving ExxonMobil
Any theoretical buyout premium is a pittance compared to the massive cash flows this world-leading tanker operation consistently pumps out.
Instead, concern yourself with the supply and demand outlook for tankers and crude oil. The two factors are related, but have their own individual dynamics. Tanker oversupply seems to be kept in check right now by both the phasing out of single-hulled units, and the usage of some units to store oil rather than deliver it. With oil futures in contango - i.e., pointing higher in future months -- it becomes economic to sit on the oil for a while.
As far as the crude oil market goes, increases in supply and demand alike are a recipe for higher freight rates. Futures contracts on the benchmark supertanker route are pointing higher -- roughly double their present level, according to Imarex. This outlook seems to be supporting Frontline, Overseas Shipholding Group
Tank up on further Foolishness:
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