SEA

According to the Zhitong Finance APP, Guosheng Securities released a research report stating that since entering August, VLCC freight rates have continued to rise due to OPEC+'s ongoing production increase, the U.S. imposing tariffs on Russian oil imported from India, and short-term futures market influences. Taking the CT1 route (Middle East Bay (Ras Tanura, Saudi Arabia) to Ningbo, China) in the CTFI index as a reference, its freight rate has rebounded from less than $20,000/day at the end of July to $47,100/day on August 22 (at standard sailing speed). The supply of crude oil transportation, especially in the VLCC market, is relatively inelastic, and the compliant market demand is experiencing marginal benefits against the backdrop of OPEC+ accelerating production increases and the U.S. continuously strengthening sanctions on Iranian and Russian crude oil. Additionally, the industry is entering the traditional peak season in the fourth quarter, and it is expected that the freight rate center will likely rise.

Guosheng Securities' main points are as follows:

Since the U.S.-China tariff increase on April 3, a significant divergence in returns has emerged between overseas oil shipping stocks and A-share oil shipping stocks.

Since the U.S. announced tariffs on China on April 3, 2025, U.S. oil shipping stocks have gradually moved out of the negative feedback sentiment of "global economic recession - declining crude oil demand - declining transportation demand." Major oil shipping companies such as TEEKAY/SCORPIO TANKERS/Frontline/DHT Holdings/INTERNATIONAL SEAWAYS have seen stock price returns of 47.46%/45.12%/44.90%/20.39%/46.42% respectively from April 3 to August 22; meanwhile, the returns of A-share companies COSCO SHIPPING Energy and CMES during the same period were 0.23% and 4.68%, respectively, indicating that A-share oil shipping stocks significantly underperformed overseas oil shipping stocks. The divergence in returns may primarily stem from different expectations of investors in the oil shipping industry between the U.S. and A-shares.

In August, the industry is in the off-season, but VLCC freight rates continue to rise.

From mid-January to May 2025, VLCC freight rates remained at a high level, with rates exceeding $50,000/day in April, indicating that the off-season was not weak; starting from June 13, due to the conflict between Iran and Israel, shipping risks in the Middle East increased, further supporting freight rates. VLCC freight rates quickly rose from $18,400/day on June 13 to $72,200/day on June 24; however, following the end of the Iran-Israel conflict, market sentiment cooled, and freight rates continued to adjust downward. Since entering August, due to OPEC+'s ongoing production increase, the U.S. imposing tariffs on Russian oil imported from India, and short-term futures market influences, VLCC freight rates have continued to rise. Taking the CT1 route (Middle East Bay (Ras Tanura, Saudi Arabia) to Ningbo, China) in the CTFI index as a reference, its freight rate has rebounded from less than $20,000/day at the end of July to $47,100/day on August 22 (at standard sailing speed).

OPEC+ continues to increase production, benefiting compliant market crude oil demand.

The supply of crude oil transportation is inelastic, and the elasticity of freight rates comes from demand. OPEC+ reached a decision on December 5, 2024, to gradually flexibly cancel the voluntary production cut of 2.2 million barrels per day starting April 1, 2025. From the monthly production decisions in 2025, the pace of OPEC+ production increases has accelerated, from 138,000 barrels/day in April to 411,000 barrels/day from May to July, and then to 548,000 barrels/day in August and 547,000 barrels/day in September The increase in crude oil production by OPEC+ member countries helps to boost the demand for VLCCs in the compliant market. Future observations will focus on the extent to which OPEC+'s increased production shifts towards exports after the peak summer oil consumption in the Middle East.

The United States continues to strengthen sanctions related to Iranian crude oil, involving Chinese entities, which is favorable for the compliant market, but attention must still be paid to the actual implementation of the sanctions.

In recent years, the United States has implemented multiple rounds of sanctions against Iran and Russia, continuously escalating them. According to the OFAC website, on August 21, the U.S. further added Iranian crude oil-related entities and vessels to the SDN list, including 8 oil tankers, 1 individual, and 13 shipping entities. The U.S. has strengthened sanctions against Iran and Russia, involving Chinese entities. If the sanctions are substantively implemented, Iranian crude oil exports and shadow fleet demand are expected to be affected, with transportation demand in the Far East likely shifting to compliant markets in the Middle East and West Africa, benefiting the demand for VLCCs in the compliant market.

On the subject side

According to Wind's consensus expectations, as of August 22, COSCO SHIPPING Energy's A-shares correspond to a 2025 valuation of 10.16 times PE, while CMES corresponds to a 2025 valuation of 8.66 times PE. Attention can be paid to COSCO SHIPPING Energy (600026.SH, 01138) and CMES (601872.SH).

Risk Warning

A significant decline in crude oil demand, OPEC+ production increases falling short of expectations, and sanctions not being implemented as expected