Guotai Haitong: Product tanker supply will remain rigid in the coming years, and the sustainability of the strong market is expected to exceed expectations.

Guotai Haitong released a research report stating that product tanker supply will remain rigid in the coming years, and the sustainability of the strong market is expected to exceed expectations. It recommends an overweight position. Product tanker owners were the first to place orders in batches starting in 2023, and subsequent years of market fluctuations affected the continuity of ordering. Currently, the orderbook-to-fleet ratio for product tankers stands at 22%, still at a historically low level. Vessels aged 20 years or above now account for over 20%, and in the next three years, another nearly 20% will exceed 20 years of age. The current orderbook is only sufficient to ensure a stable scale of compliant capacity in mainstream markets over the coming years, while shipyard orders are already scheduled beyond 2030. Tight shipyard slots will ensure rigid product tanker supply in the coming years. The recovery of Asian trade and restocking will drive a rapid short-term rise in the product tanker market, while the eastward shift of global refineries and accelerated trade restructuring will ensure the sustainability of the strong market over the medium to long term, providing room for both earnings and valuation upside. Guotai Haitong's main points are as follows: Long term: The ongoing eastward shift of global refineries will drive the upward shift in the center of the product tanker market. For a long time, crude oil was transported over long-haul routes to demand countries, where local refineries processed it for domestic consumption and regional trade. Since 2022, the trend of global refineries shifting eastward has become evident, mainly because Europe and Australia have permanently shut down local refineries in batches and turned to cross-regional imports of refined products from Asia. The average voyage distance for product tankers has significantly lengthened, driving global product tanker ton-mile demand to grow by more than 20% compared to 2019. From 2022 to the first half of 2024, product tanker capacity utilization rose markedly, the market center shifted significantly upward and reached new highs, and expectations of sustained strong market conditions drove shipowners to place orders for new vessels in batches. In the second half of 2024, due to new vessel deliveries and the decline in the crude tanker market prompting smaller vessels to switch to product tanker trade, the product tanker market saw a short-term pullback. In the first half of 2025, as oil prices fell and sanctions on Iran escalated, the crude tanker market recovered, and the product tanker market rebounded quarter by quarter. Europe plans to continue shutting down refineries before 2030, and the eastward shift of refineries will continue to drive product tanker demand growth. Medium term: The recovery of Russian refinery capacity may be slow, potentially accelerating the restructuring of Russia-Europe product tanker trade. Before 2022, Russia and Europe were highly energy-dependent on each other, with about 40% of Europe's seaborne refined product imports coming from Russia. In early 2022, the Russia-Ukraine conflict broke out, and Europe and the US imposed sanctions on Russia, including the EU ban on importing Russian oil and a price cap on Russian seaborne crude exports. Specifically, the EU announced a ban on seaborne imports of Russian crude effective December 5, 2022, and a ban on seaborne imports of Russian refined products effective February 5, 2023. According to our tracking, the restructuring of Russia-Europe crude trade through "going far instead of near" has been thorough, driving the global average seaborne crude voyage distance to lengthen by 8%. However, the restructuring of Russia-Europe product tanker trade has been limited, with Russian refined products potentially continuing to flow to Europe through re-exports via non-sanctioning countries. It is worth noting that in recent months, major Russian refineries have been successively attacked and shut down. We believe sanctions may significantly affect the speed of refinery repairs, accelerating the restructuring of Russia-Europe product tanker trade and driving longer voyage distances for product tankers. Short term: The opening of dark fleet routes in the Middle East and the issuance of China's product export quotas have kicked off a rapid recovery in Asian regional trade. Since the strait blockage from the Middle East conflict in March 2026, both Middle East crude and refined product supplies have contracted, and China and others suspended product exports to ensure domestic supply. As dark fleet routes through the Strait of Hormuz have been opened up, Middle East crude and product exports are gradually recovering, and China and others are gradually restoring crude imports and relaxing product export controls by issuing export quotas. Although the quotas are basically the same as the same period in 2025, considering the elevated international cracking spreads and the more prominent restocking demand for refined products in the Asia-Pacific region, domestic refineries are expected to actively raise utilization rates and use product export quotas, driving a rapid recovery in Asian regional product trade. Recently, the MR TCE center in the eastbound product tanker market has risen rapidly from below $30,000/day to $40,000-50,000/day.