Tuesday, May 24, 2011

Traders' Troubles Tied To Frontline

Frontline Ltd. (FRO), one of the world's leading independent petroleum shippers, should be experiencing smooth sailing with world oil prices reaching dizzying highs.  Unfortunately, news of late has been anything but smooth for the company.  The entire shipping industry is facing higher operating costs due to rising fuel prices.  FRO cut its dividend in February.  Commodity trading firms tied to Frontline's owner are in potential trouble with the CFTC over allegations of price manipulation.  It's hard to see how FRO could have benefited from oil price manipulation given its reported losses earlier this year, so this story bears watching as it heads to court. 

The stock price is suffering, down over 6% today and down by almost half of where it was on June 15, 2010 when it traded at its 52-week high of $36.85.  The company's dominant market position is a hard barrier for competitors to overcome, so perhaps this price drop is a boon for FRO watchers looking for a chance to buy.

Full disclosure:  No position in FRO.