CITIC Securities: Tightening supply boosts freight rates, route restructuring widens supply gap

The research report from CITIC Securities states that the long-term tightening of supply may permanently raise the hub of oil tanker freight rates. The shift in the supply side landscape may rewrite the underlying investment logic of the oil tanker industry. For years, the lack of capital expenditure in the traditional economic sector has laid a solid foundation for the long-term upward movement of freight rates. After the industry cycle peaked in 2008, global shipbuilding capacity was significantly reduced, with current capacity only at 60% of the peak in 2011. Japanese and South Korean shipyards are deep in a labor shortage crisis, and new capacity for large oil tankers in China may not be available until 2029 to 2030 at the earliest. More than 41% of the global VLCC fleet is over 15 years old and on the verge of being phased out. However, new orders for replacements between 2026 and 2029 will only be enough to meet 22% of the demand, highlighting a capacity gap. The inability of non-standard shadow fleets over 20 years old to return to the compliant market may continue to raise the hub of oil tanker freight rates due to sustained capacity shortages. Geopolitical disturbances are restructuring shipping routes, widening the supply-demand gap. Continuing geopolitical turmoil in the Middle East exacerbates the fragility of oil shipping supply, while reshaping the global energy shipping landscape and further widening the industry's supply-demand gap. The blockade of the Strait of Hormuz has left nearly 10% of VLCC fleets and 4.5% of Suezmax fleets stranded, with another 10% of capacity on standby and stranded, resulting in a significant loss of core effective capacity. The interruption of Middle Eastern oil supplies is forcing Asian buyers to turn to purchasing from the Atlantic Basin, with short-haul routes being converted to long-haul routes, doubling the utilization rate of capacity, with most idle capacity being taken up by long-haul demand. In addition, Asian countries are addressing their energy security shortcomings by accelerating the expansion of strategic oil reserves, providing long-term support for the increasing demand for oil shipping.