Depressed Tanker Rates Are Crippling Frontline

Oil prices are sky-high, but a glut in the number of ships built to transport the commodity led Frontline, the world’s largest operator of the biggest oil tankers, to warn on Nov. 22 that it may run out of cash next year. The Bermuda-based company, which has $1 billion of bonds and public loans maturing in the next decade, may need more funding in 2012 and there are “significant uncertainties” about meeting some loan terms at the end of this quarter, it said in a statement. John Fredriksen, the Norwegian-born billionaire who controls a 34 percent stake in Frontline and serves as its chairman, “has the funds available and he is prepared to go in and try to find solutions” if creditors go along, says Tor Olav Troim, one of his aides.

Day rates for leasing tankers have slumped 47 percent since the start of 2010, according to London-based Clarkson, the world’s biggest ship broker, as growth in oil demand has been slowed by the global economic downturn. General Maritime, the second-largest U.S.-based owner of crude carriers, filed for bankruptcy protection in mid-November. And forward freight agreements, traded by brokers and used to bet on future transport costs, anticipate unprofitable charter rates for at least two more years.