Industrial: Grasp the timing of clearing the supply of oil tanker sector while considering the recovery trend of demand.

Industrial has published a research report stating that the tanker sector has a strong clearance option for capacity, and high ship prices will continue to suppress capacity additions in the long term, leading to a tightening trend on the supply side. The current international situation is unstable, and events such as sanctions and conflicts may lead to short to medium-term price spikes. Supply sets the direction for the cycle, demand affects market conditions, and it is recommended that investors focus on short and long-term favorable options on the tanker supply side, seize the timing of supply clearance, and consider the recovery trend in demand. The recommended focus is on crude oil shipping targets: China Merchants Energy Shipping (601872.SH), COSCO Shipping Energy Transportation (01138). Industrial's main points are as follows: 1-8 month freight price review From January to April, against the backdrop of the United States continuously increasing sanctions on Russian and Iranian crude oil, the VLCC-TCE freight price center rose from around $30,000 per day to around $40,000 per day. Although the freight price center fell at the end of June, since the United States implemented sanctions on Iran again at the end of July, tanker prices have entered a rising channel once again, with VLCC-TCE rising back to over $40,000 per day in mid-August with a continued upward trend. Tanker supply and demand analysis framework Supply sets the direction for the cycle, demand affects market conditions, and most major market trends are driven by supply shortages, forming the main upward waves under the added demand. Demand is composed of basic demand, marginal demand, and speculative demand, while the distance is affected by sanctions and geopolitical conflicts; supply is determined by ship capacity, operational mileage, including existing capacity, future delivery capacity, dismantling capacity, and idle capacity, while operational mileage is the product of speed and operational duration. Demand side: Weak demand for crude oil suppresses price elasticity, focusing on OPEC+ production increases and US crude oil inventory effects In the first half of 2025, the average operating rate of major refineries in China was 76.25%, a decrease of 0.96 percentage points year-on-year; the average operating rate of local refineries in Shandong was 46.49%, a decrease of 9.13 percentage points year-on-year, leading to a simultaneous decline in crude oil demand. However, there is a long-term upward option on the demand side: since March 2025, eight OPEC+ member countries have reached an agreement to increase oil production, deciding to release 2.2 million barrels per day in phases, currently in continued production, which is expected to further drive down oil prices, releasing effective demand; in addition, the strategic oil reserves in the United States are at historical lows, a decline in oil prices may trigger a large-scale restocking, further driving up demand for oil transportation. Supply side: High proportion of aging ships, high ship prices suppress new ship supply, and strict environmental requirements force capacity clearance At the end of July 2025, there were a total of 2,337 registered crude oil tankers globally, with a capacity of 465 million deadweight tons; currently, the proportion of ships over 15 years old in the crude oil tanker fleet has reached 41.82%, and the proportion of ships over 20 years old has reached 19.63%, highlighting the aging trend. The average price of new VLCC ships is currently $126 million per ship, reaching the highest level since 2010; high ship prices have led many shipowners to believe that ordering new ships at this time is not economical, and the expected delivery volume in the next few years is expected to be very limited; at the same time, the European Union and IMO are actively promoting ship emission ratings and carbon taxes, and with the aging of the oil tanker fleet and relatively high emissions, such policies may accelerate the clearance of oil tanker fleets, and future capacity additions may not offset the clearance. Event side: Focus on the impact of sanction activities and geopolitical conflicts In recent years, the United States has intensified sanctions against oil transportation vessels involving Russia and Iran, with the number of sanctioned oil tankers reaching 471 and a capacity of 81.6754 million deadweight tons, accounting for 17.55% of the total fleet capacity, with a large number of crude oil tankers falling into the "black market". Reviewing history shows that in recent years, when the United States has increased sanctions in the tanker sector, it has often led to a significant increase in tanker prices, with increases ranging from 38% to 142%. In addition, conflicts in the Middle East (especially in the Persian Gulf region) can also lead to price increases, as evidenced in past Gulf conflicts, Iraq wars, and Libya-Syria conflicts; when the Iran-Israel, US-Iran conflict briefly erupted in June, VLCC-TCE prices once again rebounded to nearly $60,000 per day. Currently, US-Russia and US-Iran relations remain tense, and geopolitical conflicts in the Middle East are ongoing, requiring attention to the short-term stimulatory effects of events such as intensified sanctions and expanded geopolitical conflicts on oil tanker prices. Risk warnings: War risks, pressure on demand risks, transportation operation risks