On Wednesday, tanker titan Frontline
The company secured strong rates for its crude tankers, thanks in part to the composition of its fleet. Double-hull tankers, which are quickly becoming the industry standard for safety, provide Frontline a nice pricing differential over single-hull vessels. Double-hull Very Large Crude Carriers (VLCCs), for example, earned $57,700/day in the spot market, versus $51,900/day fleet-wide.
Nevertheless, margins were pressured by a reduction in trading days -- the amount of the time the vessels were out earning their keep -- versus the prior quarter. The company didn't break out this figure in its earnings presentation, but it's not too surprising that we saw a decline, given the ready availability of VLCCs and Suezmax vessels. If you're curious about the correlation between tanker rates and availability, Citigroup
Tanker fans have been kept on edge lately by the recent steep drop in spot market rates. This is typically a seasonally weak period, but VLCC rates dropped about 25% from the beginning of the third quarter through Tuesday, hitting fresh four-year lows. Until yesterday, in fact, it appeared that Frontline would be running about breakeven on spot contracts. It's important to be aware that Frontline's breakeven point is quite high compared to that of, for example, Nordic American Tanker
Suddenly there is a sign of relief, however. The Baltic Exchange is reporting that supertanker rates jumped 20% on Wednesday. I have no idea if this marks a decisive turning of the tide for Frontline, Overseas Shipholding
I'm extremely hesitant to read too deeply into moves like this, but if you're confident that both tanker and crude oil fundamentals are in place, the recent market sell-off has given you a chance to buy into any of these leading operators much more cheaply than you could have just a few short weeks ago.
You can check out any of the Fool's newsletters with a 30-day free trial.