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 being optimized, with major shipping companies like Sinokor (Korea Longjin Shipping) adjusting their capacity deployment to change the traditional off-season market competition pattern; second, sanctions measures have amplified effects, leading to a contraction in shadow fleet operations and tightening the supply of compliant Very Large Crude Carriers (VLCCs); third, crude oil transportation demand has exceeded expectations, supported by China’s strategic procurement and adjustments in Asian refinery procurement structures, maintaining growth in ton-mile demand; fourth, long-distance routes and geopolitical factors provide support, with increased premiums on routes from the Middle East to Asia and from the US Gulf to Asia.

Full Text:

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 improve, with leading shipping companies like Sinokor adopting a “stockpiling and withholding” strategy to proactively optimize capacity deployment, changing the market norms of shipowners bidding during the traditional off-season. Second, international sanctions have had amplified effects, with shadow fleet operations contracting in January, and a shift of large crude oil transportation demand toward compliant VLCCs, tightening the supply of compliant capacity. Third, transportation demand has outperformed market expectations, supported by China’s strategic procurement and the gradual shift of Asian refineries toward long-haul and compliant crude sources, maintaining steady growth in ton-mile demand. Fourth, the premium on long-haul routes and geopolitical factors support higher freight rates, with premiums on routes from the Middle East to Asia and from the US Gulf to Asia expanding, and some routes lengthening accordingly.

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 to $157,358 per day, reaching a new high since April 28, 2020; VLCC TCE rose by $4,626 to $131,914 per day. Suezmax tankers saw a slight increase of $25 to $95,572 per day, while Aframax tankers experienced a slight decrease of $105 to $78,588 per day.

Oil Shipping: 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, the US, Brazil, and other oil-producing countries are increasing production, with some African nations exiting OPEC, leading to a gradual decrease in OPEC’s share and creating more market space for other producers. By 2025, OPEC has shifted from a strategy of production cuts to actual increases, entering a phase of substantial output growth. Although this does not necessarily mean increased crude oil exports by sea, actual maritime trade volumes have increased since August, significantly boosting crude oil tanker freight rates.

Although China’s crude oil imports in early 2024 and 2025 have been weak, recent months show a stronger trend, with Q3 imports up 5% year-over-year. Steady refinery processing also supports import growth. In 2025, average crude throughput is expected to reach about 14.8 million barrels per day, up 3% YoY, with Q3 processing up 7%. Earlier this year, higher taxes on fuel oil and asphalt supported this momentum, prompting independent refiners to process more crude. Growing demand for petrochemical raw materials and reduced refinery maintenance—especially at state-owned plants—also contribute. Accelerated inventory activity and increased refinery throughput have strengthened import demand, with China’s crude inventory days rising to 110 days. So far, China’s strategic reserves plus commercial stocks have increased by 150 million barrels, worth about $10 billion, with projections to reach 140–180 days. This is driven by: (1) current low oil prices providing a strategic buying window; (2) the new 2025 Energy Law requiring state and private firms to jointly build strategic reserves; (3) 20–30% of oil imports from sanctioned countries, risking supply disruptions and prompting stockpiling; (4) large current account surpluses providing foreign exchange for oil purchases.

Refining capacity is expected to expand beyond 18 million barrels per day by 2026, supporting crude demand. Continued inventory buildup could sustain import levels into 2026, with state oil companies further increasing storage capacity by 169 million barrels, and falling oil prices may also provide support. China’s crude oil imports were initially forecasted to grow 3% to 10.7 million barrels per day next year, but there is potential for further upside.

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

Although new ship prices have recently declined somewhat, overall second-hand vessel values continue to rise, correlating with recent sharp increases in charter rates. For example, a 10-year-old vessel, originally built in 2015 at about $95 million, with 20-year depreciation and no residual value, has a book value of $47.5 million but a market value of $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 Line Alliances

Changes in regulatory policies governing global container alliances pose policy risks. In response to high freight rates, organizations like the US National Industrial Transportation League (NITL) have pressured to intervene in liner alliance antitrust exemptions. Currently, there is little evidence of monopoly pricing behavior; the EU has consistently refused intervention, citing benefits such as 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 liner alliances, risking market volatility due to policy shifts.

Global Trade Risks from Escalating Russia-Ukraine Conflict

The ongoing Russia-Ukraine conflict continues to pose serious risks to trade routes involving Europe and Russia, potentially leading to a collapse of the global shipping system and even setbacks to globalization. Investors should closely monitor developments in the 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 hub for fuel oil consumption and distribution, could see geopolitical factors affecting fuel oil output, leading to higher costs. Additionally, IMO regulations and national environmental policies may substantially raise fuel costs, as seen in 2020 when the global sulfur cap shifted consumption toward low-sulfur fuels, MGO, and LNG, causing volatile fuel prices.

(Source: Jiemian News)