Frontline to buy 24 VLCCs from Euronav amid expected tanker market upswing

Dirty tanker firm Frontline is to buy 24 modern VLCCs from Euronav, ending a drawn-out corporate dispute, as the company hopes for limited vessel supply and growing demand to lead to insufficient tonnage and high freight rates.

Global oil demand is forecast to grow by 2.2 million b/d to 102.8 million b/d in 2023, reaching pre-pandemic levels for the first time, analysts at S&P Global Commodity Insights said in September. Growth is expected to moderate to 1.7 million b/d in 2024, still higher than the long-term growth trajectory, they added.

To meet demand for 2024, the shipping industry needs another 92 VLCCs or equivalent carrying capacity but only 17 VLCCs are on order, Frontline CEO Lars Barstad said in a presentation Oct. 9.

The current orderbook-to-fleet ration is at 2%, its lowest on record, and historical trends across shipping segments including LNG tankers and containers show that low orderbooks lead to a following period of high freight rates, Barstad said.

Platts, part of S&P Global, assessed freight on the Dirty West Africa-Far East 260,000 run at $16.17/mt Oct. 10. It has averaged $22.96/mt through 2023 to date, against a five-year average of $19.27/mt.

The new acquisitions grow Frontline's fleet by 57% in dwt terms and 37% in terms of sailing days, Barstad said.

Nine of the 24 vessels are equipped with exhaust gas cleaning systems, which allow the vessel to burn 3.5% sulfur fuel, typically cheaper than the standard 0.5% sulfur fuel oil, and still comply with international sulfur regulations.

Possible overconfidence

The West of Suez VLCC sector experienced bearish pressure through the third quarter of 2023, with sources pointing to a lengthy tonnage list, low inquiry levels due to project OPEC+ oil production cuts until the end of the year, uncertainty over China's economic prospects, weakness in the Persian Gulf and US Gulf markets and a seasonal summer downturn.

Despite, most market participants believing that rates will firm moderately in the fourth quarter of 2024 due to seasonal factors, a UK-based VLCC broker cautioned against excessive optimism, noting that growth would likely be solid rather than spectacular.

"When we had that recent jump in rates, the momentum built up and people got carried away to an extent – owners have been way higher in their ideas," the broker said.

However, sources have also indicated significant owner resistance to fixing what will likely be their final fronthaul voyage of the year at rates which they deem to be too low.

Turning a page

The Frontline-Euronav transaction puts an end to the deadlock arising from their "entrenched differences over strategy," Euronav said in its own statement Oct. 9.

The agreement involves two of Euronav's shareholders, CMB and Frontline. CMB will acquire Frontline's 26.12% stake in Euronav and Frontline acquires the 24 tankers. Euronav's pending arbitration action against Frontline and affiliates will consequently be terminated, Euronav said.

Following months of merger talks amid strong opposition from the Saverys family, Euronav's largest shareholder, Frontline announced in January it would no longer pursue the merger of the two tanker giants.

The Saverys family, which founded Euronav, said it would block a full legal merger after winning the power to do so under Belgian law by amassing a 25% shareholding.

Euronav should move away from crude transportation to focus on green technology, according to the Saverys, but the proposal was rejected by Euronav's management.