CITIC Construction Investment: Oil transportation industry outlook improves, shipping route rents rise

CITIC Construction Investment Research reports that the overall operation of the international oil shipping industry is improving. First, the structural supply pattern is optimized, with major shipping companies like Sinokor Shipping adjusting their capacity deployment pace, changing the traditional off-season market competition pattern; second, sanctions measures have amplified effects, with the shadow fleet operating scale contracting, and compliant VLCC (Very Large Crude Carrier) capacity supply becoming tighter; third, crude oil transportation demand has exceeded expectations, supported by China’s strategic procurement combined with adjustments in Asian refinery procurement structures, maintaining growth in ton-mile demand; fourth, long-distance routes and geopolitical factors provide support, with premiums on routes from the Middle East to Asia and from the US Gulf to Asia expanding.

全文如下

CITIC Construction Investment | Oil Shipping Industry Outlook Brightens, Shipping Rates Rise

The overall trend in the international oil shipping industry is positive. First, the structural supply pattern continues to optimize, with leading shipping companies like Sinokor Shipping adopting a “stockpiling and withholding” strategy, proactively adjusting their capacity deployment, which has changed the market convention of shipowners bidding during the low season. Second, international sanctions have had amplified effects, with the shadow fleet shrinking in January, and a large volume of crude oil transportation demand shifting toward compliant VLCCs, making compliant capacity relatively tight. Third, transportation demand has outperformed market expectations, supported by China’s strategic procurement, coupled with Asian refineries gradually shifting toward long-haul and compliant crude sources, maintaining steady growth in ton-mile demand. Fourth, the premium on long-haul routes supported by geopolitical factors has widened, with route premiums from the Middle East to Asia and from the US Gulf to Asia increasing, and some routes experiencing longer distances.

During the Spring Festival holiday, shipping rates continued to rise. The time charter equivalent (TCE) for the Middle East to China route (TD3C) increased by $6,150, reaching $157,358 per day, a new high since April 28, 2020; overall VLCC TCE increased by $4,626 to $131,914 per day. Suezmax tankers saw a slight increase of $25 to $95,572 per day; Aframax tankers saw a slight decrease of $105 to $78,588 per day.

Oil Shipping: Gradually Moving Toward a Compliance Bull Market

The Russia-Ukraine conflict has altered the global crude oil supply landscape. Due to restrictions on Russian oil, the EU and other countries have significantly reduced their dependence on Russian oil, which has been redirected to Asian markets. Meanwhile, other oil-producing countries like the US and Brazil are increasing output, and some African nations have exited OPEC, leading to a gradual decrease in OPEC’s share and leaving more room for other countries to boost production. By 2025, OPEC has shifted from a previous strategy of production cuts to increasing output, entering a phase of actual growth. Although this does not necessarily mean an increase in crude oil exports by sea, actual maritime trade volume data since August has shown increases, effectively boosting crude oil tanker freight rates.

Although China’s crude oil imports via sea were weak in early 2024 and 2025, recent months have shown a stronger trend, with third-quarter imports up 5% year-over-year. Steady refinery processing also provided additional support for imports. In 2025, average crude processing is expected to reach about 14.8 million barrels per day, up 3% YoY, with third-quarter processing up 7% YoY. The first half of this year saw increased taxes on fuel oil and asphalt imports, encouraging independent refineries to process more crude. Growing demand for petrochemical raw materials and reduced refinery maintenance plans—especially at state-owned plants—also support this trend.

Significant acceleration in inventory activity and increased refinery throughput have driven stronger import demand. China’s cargo volume has increased, providing potential support for this year’s crude oil tanker market. China’s crude oil inventory days have risen to 110 days, with strategic reserves plus commercial stocks increasing by 150 million barrels, worth about $10 billion. Future plans aim to raise this to 140–180 days, driven by: (1) current oil prices at relatively low levels, creating a strategic buying window; (2) the new Energy Law effective in 2025, requiring state-owned and private companies to jointly undertake strategic reserves, creating institutional incentives; (3) about 20–30% of oil imports coming from sanctioned countries, posing supply interruption risks, making reserves a preemptive measure; (4) a large current account surplus providing foreign exchange to purchase crude.

Refining capacity is expected to continue expanding, surpassing 18 million barrels per day by 2026, supporting crude demand. The ongoing inventory buildup could sustain import volumes into 2026, with state oil companies further increasing storage capacity by 169 million barrels, and falling oil prices could also provide support. China’s crude oil imports were initially projected to grow by 3% to 10.7 million barrels per day in 2024, but there is potential for further upside.

Due to increased sanctions on shadow fleets by the US and Europe, especially since early 2025, effective capacity has shrunk, pushing up freight rates and increasing seasonal resilience. Currently, about 16% of VLCCs are restricted ships, with Aframax ships closely linked to Russia accounting for 33%.

Although new ship prices have recently declined somewhat, overall secondhand vessel values remain rising, correlating with recent sharp increases in charter rates. For example, a 10-year-old vessel, originally costing about $95 million in 2015, depreciated over 20 years to a book value of $47.5 million, but its market value has reached $88 million, an 85% increase.

While supply pressures in 2026 may limit freight rate gains, aging vessels remain a concern, and the freight rate center is gradually moving upward.

Policy Risks from Global Container Alliance Regulations

In response to soaring container shipping rates, the US National Industrial Transportation League (NITL) and others have pressured to intervene in the antitrust exemptions of container alliances. In the short term, there is little evidence of monopoly pricing behavior; the EU has consistently refused intervention, believing that shippers benefit from increased service density, broader route coverage, and fewer transshipments. In the medium to long term, if high freight rates persist, the US or EU may reconsider the regulation of global container alliances, risking market volatility due to policy changes.

Global Trade Risks from Escalating Russia-Ukraine Conflict

The ongoing Russia-Ukraine conflict continues to threaten trade routes involving Europe and Russia, risking a collapse of the global shipping system and even a retreat from globalization. Investors are advised to closely monitor the evolving conflict, energy policies, and sanctions.

Sharp Rise in Fuel Costs

Fluctuations in international crude prices pose a risk of significant increases in fuel costs for shipping companies. Singapore, as the largest global hub for fuel oil consumption and distribution, may see geopolitical factors affecting its fuel oil output, leading to higher costs. Additionally, IMO regulations and national environmental policies could substantially raise fuel costs for shipowners. Historically, the 2020 global sulfur cap regulation caused major shifts in marine fuel consumption, with low-sulfur fuel oil, MGO, LNG, and other clean energy sources significantly increasing fuel costs and causing price volatility.

(Article source: Jiemian News)