Frontline Ltd (FRO)

[Dr Blunt]

$FRO Tanker Market Update

Global crude oil supply has decreased by 9.0 million barrels per day in the third quarter of 2020 compared with the third quarter of 2019, according to the U.S. Energy Information Administration (the "EIA"). Oil supply continues to be constrained under the OPEC+ agreement, but Libya has introduced a significant amount of export volumes after the Joint Military Committee ceasefire agreement in October this year. The EIA forecasts that global consumption of petroleum and liquid fuels will average 92.9 million barrels per day (“mb/d”) for all of 2020, down by 8.6 mbd from 2019, before increasing by 5.9 mb/d in 2021. This will not make up for the demand lost this year, but it speaks to a continued belief in the recovery of demand.

At the end of the third quarter of 2020, the year-over-year growth of the overall tanker fleet was 3.7%, which is detrimental for the near-term tanker market. Floating storage, both of crude and refined products, kept vessel utilization relatively high into the third quarter of 2020, but as global oil demand began to recover, oil stored on tankers was gradually released, returning vessels to the market and further increasing effective fleet supply.

In the meantime, the global tanker fleet continues to age. In 2020, 5.5% of the VLCC fleet and 7.0% of the Suezmax and Aframax fleets are either above or passing their 20-year anniversary. Despite conditions that would typically lead to vessel recycling, very few vessels have been reported sold for recycling. This may be due to wide reaching interruptions in docking activity, special survey exemptions and the deferral of the costs associated with both.