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More scrapping may lift oil tanker rates in late 2018

[OSLO] Oil tanker firm Frontline expects shipping firms to scrap more old vessels which may lead to a recovery in rates for the remaining global fleet in the second half of 2018, its chief executive told Reuters on Monday.

Spot rates for very large crude carriers (VLCCs), with a capacity to transport 260,000 tonnes of oil, have recently dropped to a loss-making US$13,000-14,000 per day, far below Frontline's cash breakeven rate of US$21,600.

Spot rates for the smaller Suezmax vessels are also below Frontline's cash breakeven level, as the supply of new ships has outgrown the rise in global oil demand.

"We're reluctant to predict a strengthening of the market in the short term, even though the current weakness at the start of the winter season is surprising," Frontline CEO Robert Hvide Macleod wrote in comments in an e-mail to Reuters.

At the same time, a weak winter season could trigger a shake-out of older ships as owners cut vessels that are often less efficient to operate from their fleet.

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"We've seen increased scrapping activity, from 2 VLCCs in 2016 to 11 VLCCs in 2017. With the weak tanker market and strong prices for scrap steel, we believe this trend will accelerate," Mr Macleod said.

Asked when a potential recovery of rates to US$30,000-40,000 per day for VLCCs and US$20,000-30,000 per day for Suezmax vessels could take place, Mr Macleod pointed to the second half of 2018 as a potential turning point.

"If oil demand grows as expected, the tanker market in the second half of 2018 will be interesting. And faster if scrapping were to increase significantly," he added.

While Frontline failed in its attempt to buy rival DHT Holdings earlier this year, the company has not given up on consolidation.

"Asset prices have been largely flat, at a bottom, for the last 9-12 months, and weak markets could make it easier to put in place constructive solutions going forward," Mr Macleod said.


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