Is Frontline on the Front End of the Oil Collapse?

I was researching tanker and rig counts the other day (I know, get a real hobby!) when I noticed FRO had a bad Q2. That’s strange, I thought, how can an oil tanker company have a bad quarter? http://biz.yahoo.com/ap/060822/earns_frontline.html?.v=1 Well, it turns out they had “a soft shipping market” and the company had to dock several vessels. There are 3,600 active tankers on the sea carrying well over 1Bn barrels of oil at any given time at rates that work out to approximately .10 per barrel per day. http://www.investors.com/editorial/IBDArticles.asp?artsec=23&issue=20060901 Was Frontline just a poorly run company? No, GMR’s revenues dropped 30% from Q1, OSG’s 30%, TK was so far off S&P put them on credit watch. All of these companies have defied gravity and stayed near their all-time highs in anticipation of Hurricane season once again forcing the US to pay triple rates to bring oil into the country so I see some nice short opportunities here. If we don’t get those hurricanes the OSG Oct $65 puts for $1.95 may be in play but I also like the Jan $60 puts for $1.50 as a pre-roll. GMR is less overbought and can be used as a buy/sell signal on the OSGs. So why would there be less tanker traffic during our “energy crisis?” Perhaps we are simply making more of our own… Rig counts are through the roof, literally hitting 20 year highs and that doesn’t tell the whole story as modern rigs are more efficient than the older models. There is a very direct relationship between oil price and rig count and rigs have gone way past the point where they usually begin to drive down oil prices (perhaps because we have cut back on imports so quickly). According to Baker Huges, there are now 1,732 currently active rigs, a 20% increase over last year! If the relationship between rig count and oil normalizes, we may be heading for a serious correction! http://www.bakerhughes.com/investor/rig/rig_na.htm Speaking of Baker Hughes, let’s keep an eye on those rig counts as BHI, SLB, HAL, RIG and DO ALL fell 50% OR MORE between November 1998 and August 1999! And if all this indirect evidence isn’t enough to calm the oil bulls, how about this little gem of a study from CERA which says: A) Current global oil capacity is 88.7Mbd, not the 84Mbd figure that is often cited. B) In just 9 years we will be producing 110Mbd http://www.intertanko.com/templates/Page.aspx?id=36286 I’ve been saying it all Summer and it’s finally here! http://biz.yahoo.com/ap/060904/oil_prices.html?.v=4 Maybe I’m right about some of this other stuff too…