CITIC Securities: Short-term uncertainties are still expected to drive up oil transportation freight rates

CITIC Securities Research Report states that the blockage of the Strait of Hormuz is reshaping the energy landscape. According to Kpler data, approximately 10 oil tankers are expected to dock at Yembu Port. Concerns over the “price without market” are being broken, and the number of VLCCs is expected to further increase. The shipping distance from Yembu Port / Strait of Hormuz to Qingdao Port has increased by about 18%. Considering the shipping capacities of Yembu Port and Fujairah Port, and seeking to supplement demand gaps with the U.S. Gulf, the shipping distance growth could further expand to over 30%. In the short term, strategic reserves are being released, and supply chain adjustments are being made to hedge against the geopolitical impacts of the US-Iran conflict, but partial recovery of the Strait of Hormuz transit capacity remains a key solution. After the lifting of restrictions, compensatory demand is expected to keep oil tanker transportation at high freight rates; if vessel utilization is limited, freight rates could rise further. The historically increased concentration of VLCC capacity is reshaping the pricing mechanism. On one hand, “quasi-alliance” structures enhance shipowners’ bargaining power; on the other hand, alliances formed by Sinokor, MSC, and Trafigura, with their fleet rental surpluses, further boost capacity expansion, likely increasing concentration. Short-term uncertainties may still drive freight rates upward, supporting the expectation that leading oil shipping companies will achieve record profits by 2026.

Full Text Below

Oil Shipping | Monitoring Marginal Changes in Strait of Hormuz Transit

The blockage of the Strait of Hormuz is reshaping the energy supply chain. According to Kpler data, about 10 oil tankers are expected to dock at Yembu Port. Concerns over “price without market” are being alleviated, and the number of VLCCs is expected to further increase. The shipping distance from Yembu Port / Strait of Hormuz to Qingdao Port has increased by approximately 18%. Considering the shipping capacities of Yembu Port and Fujairah Port, and seeking to fill demand gaps with the U.S. Gulf, the shipping distance could grow by over 30%. Based on Kpler data, around 10 oil tankers are expected to dock at Yembu Port. The concern over “price without market” is being dispelled, and VLCC numbers are expected to rise further, potentially benefiting from risk premiums due to geopolitical conflicts and significant increases in shipping distances.

In the short term, releasing strategic reserves and adjusting supply chains are strategies to hedge against the geopolitical impacts of the US-Iran conflict, but restoring some capacity in the Strait of Hormuz remains a key approach. Once restrictions are lifted, compensatory demand is likely to sustain high freight rates for oil tankers; if vessel utilization remains constrained, rates could rise further.

Looking at crude oil flows, in Q1 2025, approximately 5.351 million barrels per day are transported through the Strait of Hormuz to China, accounting for about 46.1% of China’s imports. Additionally, flows to India, Japan, and South Korea via the Strait are 2.085, 1.704, and 1.554 million barrels per day, representing 43.5%, 66.9%, and 61.8% respectively, indicating a dependency on the Persian Gulf that may be higher than the global average. In the short term, releasing strategic reserves and adjusting supply chains are measures to hedge against the geopolitical impacts of the US-Iran conflict, but restoring some capacity in the Strait remains a solution. If the restrictions are lifted, major Asian consumers will have opportunities for compensatory crude oil procurement. Short-term capacity adjustments may cause port congestion, but reduced vessel utilization could further boost freight rates. Events involving Iran and others are expected to strengthen the cycle momentum, with leading oil tanker profits potentially reaching new highs by 2026.

The historically increased concentration of VLCC capacity is reshaping the freight rate pricing mechanism. On one hand, “quasi-alliance” structures improve shipowners’ bargaining power; on the other hand, alliances formed by Sinokor, MSC, and Trafigura, with their fleet rental surpluses, enable further capacity expansion, likely increasing market concentration.

Risk Factors:

• Large-scale recovery of non-compliant ships
• Geopolitical conflicts exceeding expectations
• Lower-than-expected transportation demand
• Trade pattern adjustments below expectations

Investment Strategy:

Structural opportunities in oil shipping valuation and assets are expected to continue. The supply chain restructuring driven by geopolitical conflicts is becoming the core driver of this shipping cycle. The Strait of Hormuz accounts for about 30% of global crude oil and petrochemical transportation. The “bullish option” in the oil tanker cycle is gradually materializing, with VLCCs leading resilience. Freight rate mechanisms are being reshaped, with weak seasonal effects diminishing. We expect Q1 2026 profits for companies like COSCO Shipping Energy and China Merchants Energy to surpass Q4 2025’s peak season. Under the geopolitical backdrop, events involving Iran and others are reinforcing the cycle momentum, with leading oil shipping profits potentially reaching new highs in 2026.

(Source: People’s Financial News)