Geopolitical Shifts Reshape Global Oil Trade Landscape, Analyst Sees Strong Outlook for Tanker Firms

Hua Chuang Securities released a research report stating that geopolitical variables are reshaping the global oil trade structure. The Russia-Ukraine conflict initiated the first phase of oil trade route reconstruction, while Middle Eastern conflicts may initiate the second phase. Industry restocking demand could last over a year; import channels are diversifying; and the long-term demand logic for compliant markets is expected to strengthen continuously. From the perspective of the VLCC fleet, recent new orders indicate most schedules are already set for 2029-2030, suggesting limited new VLCC capacity elasticity before 2029. The firm continues to strongly recommend core crude oil shipping targets: COSCO SHIP ENGY (600026.SH, 01138) and China Merchants Energy Shipping (601872.SH). It also recommends the core refined oil shipping target China Merchants Nanjing Tanker (601975.SH). Hua Chuang Securities' main views are as follows: Demand: Potential Trend Changes in Trade Structure Under Oil "Security Anxiety" In recent years, persistent geopolitical conflicts have impacted the global oil trade structure. The original transportation network, optimized for cost and efficiency, has been disrupted, requiring reconstruction incorporating geopolitical variables. The Russia-Ukraine conflict began oil trade route reconstruction 1.0, and Middle East conflicts may initiate reconstruction 2.0. Demand Change 1 - Volume: From Restocking to Stockpiling Expansion. 1) Restocking demand could last over a year. In March, inventories outside the Gulf region fell sharply by 205 million barrels. Extrapolating linearly, this could reach 620 million barrels by the end of May. If conflicts ease by then, triggering a global restocking process, assuming restocking speeds of 1-4 million barrels per day, the shortest restocking time would be about 154 days, with the longest being 1.7 years. 2) The energy crisis triggered by Middle East conflicts may prompt countries to increase crude oil inventory levels. The firm's calculations show that if the total inventory of China, the US, Europe, Japan, South Korea, and India increases by 10%, it corresponds to an incremental 350 million barrels of crude oil. If their inventory availability days all increase to 90 days, the corresponding restocking volume would be 2.17 billion barrels. Assuming a restocking speed of 2 million barrels per day, the restocking cycle would be 3 years. Demand Change 2 - Distance: Diversification of Import Channels. The firm calculates that if the inventory availability days for China, Japan, South Korea, and India increase to 90 days, and the import share from the Middle East drops to the 39%~49% range, with shares from the US Gulf, West Africa, and South America increasing proportionally, this would correspond to an incremental demand of 17,332 billion ton-nautical miles, representing a growth rate of 15.8% based on 2025 levels. Demand Change 3: Compliant Markets: Long-Term Demand Logic Expected to Strengthen Continuously. The global crude oil production increase cycle boosts transportation demand. Compared to the three previous rounds of production cuts, OPEC+ still has a potential production increase of 3.24 million barrels per day, accounting for about 8% of global seaborne volume in 2025. As sanction enforcement intensifies and geopolitical factors continue to cause disruptions, the logic of "black oil turning white" may continue to materialize. Supply: Structure, Aging Vessels, and Deliveries 1) The Strongest Structural Logic: Sinokor Merchant Marine's large-scale purchases in the VLCC market have changed the industry, and the largest container shipping company MSC has emerged. South Korea's Sinokor Merchant Marine, through purchasing second-hand ships and time-chartering to lock in capacity, has become the world's largest VLCC operator, holding 24% of the spot market share and 20% of the compliant market share. This has fundamentally altered the fragmented competitive landscape of the VLCC market and replicated a strategy similar to container shipping's "blank sailings to support rates," significantly boosting freight rates. 2) The Debate on Aging Vessels and Deliveries: The current VLCC fleet faces severe aging, a high proportion under sanctions, and low utilization. Vessels over 20 years old account for 20% of the fleet, with 58% of those under sanctions. Among these, 42% are not in active service (i.e., idle, floating storage, etc.). Historically, scrapping cycles are typically triggered in low freight rate environments. However, considering that the current link between aging vessels and sanctions is different from the past, the process of returning to compliant markets may still face challenges related to cost, environmental regulations, and charterer acceptance. This could lead to vessel scrapping even in high freight rate environments, thereby offsetting future new capacity deliveries. Appendix: The ratio of VLCC orderbook capacity to total capacity is 27.4%, at a historical median level. The current orderbook cannot yet cover capacity over 15 years old. Based on recent new orders, most schedules are set for 2029-2030, indicating limited new VLCC capacity elasticity before 2029. Clarksons forecasts VLCC newbuild deliveries of 36, 66, and 87 vessels in 2026-2028, corresponding to capacity growth rates of 3.8%, 6.0%, and 8.7%, respectively. Core Tanker Stock Targets The firm continues to strongly recommend core crude oil shipping targets: COSCO SHIP ENGY (H/A) and China Merchants Energy Shipping. It recommends the core refined oil shipping target China Merchants Nanjing Tanker. The firm calculates that for every $10,000 per day fluctuation in VLCC TCE, the pre-tax profit sensitivity for the VLCC fleets of COSCO SHIP ENGY and China Merchants Energy Shipping would be approximately 1.01 billion yuan and 1.23 billion yuan, respectively. For every $10,000 per day fluctuation in MR TCE, the pre-tax profit sensitivity for China Merchants Nanjing Tanker's MR product tanker fleet would be approximately 870 million yuan. From Q4 2025 to Q1 2026, the performance of these three tanker companies is expected to rise to the mid-to-high range of historical levels. In Q1 2026, China Merchants Energy Shipping's net profit attributable to shareholders is forecast to reach a historical high, while COSCO SHIP ENGY's is expected to be a near five-year high, only lower than Q2 2020. Risk Warnings: Tanker demand falling short of expectations, slower-than-expected aging vessel scrapping progress, and newbuild deliveries or orders exceeding expectations.