What do you think of VLCC

Frontline FRO 885094

Hello Bellavista, sorry delay. Since I sold a little too early (whatever that means) thanks to go away feng shui, here are my five cents why I would sell now - only to get back cheaper (yes, yes, you're right, merci for the silent remarks ... is of course only human to interpret the facts in such a way that you weren't completely wrong ...)

NB: This is not a recommendation - especially not if you have practically free FRO shares in the PF. That means the divis have already paid the cost price, 100% ROI. That’s not everywhere, not every day.

The facts: VLCC Tankermarket, recent news - also from Friday the 13th ...

Arabian Gulf - Japan. For this typical trip, the indicative VLCC freight rate has dropped to 25K $ / day. That is 44K $ / day below the previous year. The 2007 freight rate average is 39K $ / day. It hasn't been that deep since 2002.

FRO published in February 07 that their break-even VLCC rate is around 30K $ / day. Of course, you have to consider other factors (sales mix of spot, time, voyage charter, time utilization, financing costs, write-offs, short sales) but, as a rule of thumb, FRO has not made a lot of money this year and at the moment they are under water.

There is still the possibility for a surprise up-tick in the second half of the year like in 2005. Fundamentals are not looking good, despite the widespread view of equating the tanker market with the oil price development (price = demand = volume). This is not always the case. You can see in the charts http://tinyurl.com/3cftur that the oil $ / bbl price and freight rates can sometimes diverge sharply.

Outlook, general: Latest VLCCs need around 60K $ / day to cover finance and fixed costs, compared to 33K $ / day for new builds in 2003.

More info here: http://tinyurl.com/34mu7o