Oil-Tanker Rates Gain for Third Day as Demand Diminishes Glut
By Alaric Nightingale - May 1, 2013 12:32 PM ET.
Rates for oil tankers shipping Saudi Arabian crude to Japan advanced a third day as a surplus of the vessels diminished, allowing owners to boost charter prices.
Costs rose 1.9 percent to 34 Worldscale points on the trade route that’s used to settle freight swaps, according to data from the Baltic Exchange in London. The rate equates to daily earnings of $1,504, the bourse’s calculations show. Owners need about $9,300 a day more than that to cover running costs including crew and insurance, according to the most recent estimate of industry expenses from Moore Stephens LLP, a London- based consultant.
A glut of the supertankers averaged 20 percent last month, the smallest excess since January, according to weekly market surveys by Bloomberg. Supply of the vessels will climb 5 percent this year while demand swells 5.1 percent, according to Clarkson Plc, the world’s largest shipbroker.
The advance in rates this week is because of a “short burst of inquiries out of Asia,” Sam Margolin, an analyst at Cowen Securities LLC, a New York-based investment bank, said in an e-mailed note today. The surplus of vessels will curb future gains, he said.
The biggest change in rates for crude tankers was for vessels transporting 70,000 metric-ton cargoes to the U.S. Gulf from the Caribbean. Costs for those rose 8.1 percent to 102.95 Worldscale points, according to the exchange.
Costs for vessels moving 38,000 tons of diesel to Europe from the U.S. Gulf jumped 2.8 percent to 77.5 Worldscale points, the biggest move for tankers hauling refined fuels.
I bought more shares of FRO today. I'm slowly working my cost basis down quite remarkably. So when the recover happens, I'll have a huge position. Since I'm not selling, some of the short sellers willl find it hard to find shares to cover. What the short sellers don't know is their buddies will beat them out the back door leaving them as the bag holders.
If you look at JRCC today, you get to see what a short squeeze is. A few shorties are now puking their guts on JRCC just like they did AIG and VW a few years ago.
Even without a big change in the glut, the coming war will rise rates to $250,000 per day.
Obama has to put up or shut up. The red line in the sand has been crossed so Syria is a foregone conclusion just like 250,000 taker rates.
I would sure as hell be scared shiitless if I woke up one morning in May and discovered Tanker rates just hit $250,000 per day because 3 VLCC's just got blown up in the Persian Gulf.
Shorting tankers now is really dumb.
Short squeeze coming will brutal, FRO could hit $100 under those circumstances.
My take of wlhat is happening with FRO's share price right now and for the short to medium time frame, is that the announcement of "changes" which will dilute future returns to existing share holders, is spooking them.
They have an opportunity to sell their shares right up until the actual meeting occurs. So, a shakeout is occuring. I think this shake out is occuring because an awful lot of share holders simply do not understand what is happening, and as such, are throwing in the towel out of fear that things may appear even worse after the meeting.
This is a timed stock price move. It may get overdone going into the timed event, and a bounce will occur before, or, it will drop right into the event.
Once the meeting occurs, and the results are known, I expect one of two things will occur.
Either the shareholders will now feel more comfortable once all the unknowns of the event occur, or, from the meeting, a new timed event will be scheduled, and selling or bounces will occur going into the next timed event.
My sense is that from a practical business perspective, there is nothing bad coming from the changes that will occur from the meeting for existing shareholders.
At the same time, once the meeting is held, I expect that things will get clearer, and part of that clarity, will be that the debt from the preferred shares will be erased at some point in time, and will no longer be a threat to the existance of Frontline as a company.
If I am correct, and the recent fall in price is due to fear of the unknown by shareholders, it will get overdone, and once what was previously unknown is known, and the understanding that business risk has been substantially reduced, we may see a decent bounce out of this pig. lol