LONDON (Bloomberg) - Frontline, the world's biggest operator of supertankers, said third-quarter profit tumbled 76 percent as it leased out ships for less and fuel costs surged.

Net income fell to $24.2 million, or 32 cents a share, from $98.8 million, or $1.32, a year earlier, Hamilton, Bermuda-based Frontline said in a statement to the Oslo stock exchange. That missed the $40 million, or 53-cent-a-share, median estimate of seven analysts surveyed by Bloomberg.

Refineries are cutting crude-oil imports because of reduced processing margins, Frontline said. At the same time, shipping lines face increased fuel costs after oil prices climbed to a record. Frontline said "substantially weaker" tanker rental rates were also attributable to a "high availability" of ships.

"They are hardly making any money," said Siri Evjemo Nysveen, a broker at Kaupthing in London, who until September covered Frontline as an analyst at the bank. "This is a very negative report."

The company's shares dropped 5.5 kroner, or 2.5 percent, to 211 kroner in Oslo, the lowest since April 27. That pared their gain this year to 17 percent, valuing Frontline at 15.8 billion kroner ($2.92 billion).

Earnings from Frontline's very large crude carriers, or VLCCs, declined 39 percent to $36,000 a day while those from its 1 million-barrel carriers declined 37.5 percent to $25,000 a day. Breakeven levels are $30,000 and $22,100 respectively.

Third-quarter sales slumped 32 percent to $276 million. Profit included a gain of $4.8 million on the sale of the tanker Front Horizon. Excluding that transaction, net income was $19.3 million, less than the $28 million, or 38.5-cent-a-share, median estimate from 10 analysts.

Frontline said operating performance in the last three months of the year will be "in line" with the third quarter. Net income for fourth quarter will be buoyed by the sale of shares of Imarex NOS ASA, an Oslo-based derivatives broker, and Dockwise Ltd., a company that hauls oil rigs.

The weakening market for leasing vessels may lead to Frontline lowering its profit outlook for 2008, Mr. Nysveen, said.

World oil demand will rise 2.3 percent next year, Frontline said, citing data from the International Energy Agency, an adviser to 26 nations.

The carrying capacity of the global fleet of VLCCs will climb almost six percent to about 156.5 million tons in 2008, from about 148 million tons at the end of this year, according to estimates from London-based shipbroker Galbraith's Ltd.

The Galbraith's assessment assumes 40 new VLCCs will enter service, each with a capacity of about 310,000 tons, and 15 carriers that can each haul about 260,000 tons will be withdrawn.

Frontline said last week that 38 VLCCs globally will be converted to "non-trading purposes." Of those ships, 90 percent will become iron-ore carriers, and 10 percent will be turned into storage and production vessels. It didn't give a timeframe.

Frontline plans a dividend of $1.50 a share for the third quarter. Frontline has said its target is to pay about 100 percent of profits to shareholders in the form of dividends.