CITIC SEC: Key contradiction once again driven upward; widening discounts stimulate cargo; 4Q26 tanker leaders' valuation and earnings expected to hit historic highs

CITIC SEC released a research report stating that the tanker shipping sector's prosperity continues to rise, with crude oil & refined product freight rates continuing to climb during the holiday. Oil exports through the Strait of Hormuz have recovered to pre-war levels, and a large increase in cargoes, combined with the continuous loss of effective VLCC capacity caused by ship-to-ship transfers and vessel damage, has created a supply-demand gap that cannot be matched. Meanwhile, Saudi Arabia's expanded discounts are stimulating cargoes, high cracking spreads are supporting refineries' purchasing willingness, and G7 strategic reserve releases are driving a turning point in refined product transportation. The DRIVE for freight rate increases is sufficient and may rise further after the holiday. 4Q26 tanker leaders' valuation and earnings are expected to hit historic highs. CITIC SEC's main views are as follows: Crude oil & refined product freight rates maintained upward momentum during the holiday, Strait oil exports recovered to pre-war levels, increased capacity losses combined with demand support, and freight rates may rise further after the holiday. According to Clarksons, for the week ending October 2, 2026, VLCC/Suezmax/Aframax TCE rose 10.0%/73.3%/8.4% week-over-week to $653,424/$611,543/$265,286 per day, respectively. VLCC demand began to spill over, Suezmax freight rates surged significantly, and dark fleet and STS activity remained active, on the one hand driving a rapid recovery in crude oil exports through the Strait of Hormuz. According to Kpler data, Middle East oil exports (excluding Iranian exports) exceeded the pre-conflict level of 18 million barrels per day for the first time for several consecutive days in late September. In addition, non-traditional STS operations have caused the loss of effective VLCC capacity to spiral upward. The large increase in cargoes and CKH HOLDINGS' limited list of available vessels have driven VLCC freight rates to continue rising and further fed back into the time charter market. According to Clarksons, for the week ending October 2, 2026, ECO VLCC one-year time charter rates rose to $265,000 per day, up 101.9% from the end of August 2026. The doubling of freight rates in the time charter market better reflects the industry's expectations for vessel tightness. As the frequency of ship attacks in the Strait increases during the holiday, capacity losses are further amplified, and freight rates may rise further after the holiday. Expanded discounts stimulate cargoes, STS transfers have become the primary delivery method, and the large increase in cargoes combined with the continuous loss of effective capacity is driving VLCC freight rates upward. According to Cailianshe, on October 5, Saudi Aramco set the official selling price (OSP) for Arab Light crude sold to Asia in November at a discount of $5 per barrel to the Oman/Dubai average. Discounted sales will further increase attractiveness to downstream buyers and have become the primary means for Gulf oil-producing countries. According to Xinhua News Agency, Iraq's oil tanker company confirmed on the 3rd that it had used a large tanker to transport 2 million barrels of crude oil out of the Strait of Hormuz to deliver to buyers waiting outside the Strait, the first time in decades that the company has used this method for delivery. Currently, STS transfers have become the primary delivery method for Gulf oil-producing countries' exports. However, as non-traditional loading and unloading operations, along with practical shuttle tanker capacity constraints, STS has caused the continuous expansion of effective VLCC capacity losses, which resonates with the cargo growth stimulated by discount sales and high cracking spreads. This is the core reason for the recent VLCC freight rate increases. Against the backdrop of cracking spreads unable to narrow quickly, accompanied by increased frequency of ship attacks and difficulties in repairing damaged vessels, effective capacity is further damaged. The DRIVE for VLCC freight rate increases remains sufficient, and VLCC freight rates may rise further after the holiday. Demand-side purchasing momentum remains strong, cracking spreads are expected to remain high, G7 begins further releasing strategic petroleum reserves, and refined product transportation faces a turning point. Demand-side purchasing momentum remains strong. On the one hand, high cracking spreads provide refineries with sufficient profit cushions, combined with in-Gulf discount sales covering part of transportation costs, refineries' purchasing willingness has strengthened. Considering the continuation of Russia's refined product export ban, attacks on refineries, and Middle East refined product exports being constrained by the Strait blockade, cracking spreads are expected to remain high. On the other hand, energy procurement is gradually shifting from cost-effectiveness priority to stability priority. To alleviate the pressure from continuously rising diesel prices, according to CCTV News, on October 2, 2026, the French Presidential Palace Elysee issued a statement saying that G7 member states will coordinate through the International Energy Agency to release 100 million barrels of strategic petroleum reserves over a period of 4 months, with the first 20 days concentrating on diesel reserve releases (corresponding to a daily release volume of 820,000 barrels per day). If all diesel is released in the first 20 days, the corresponding total would be approximately 16.4 million barrels. Europe is expected to actively seek alternative sources of refined product imports during the reserve release process. Seasonal rigid demand combined with voyage distance growth brought by trade flow shifts is expected to bring a turning point for refined product transportation. Since August 20, the spiral increase in effective capacity losses and the resonance with Middle East cargo volume increases squeezing the transportation side have continued to play out as the core contradiction. Enterprises with more flexible operating mechanisms and superior fleet structures are expected to benefit first. 4Q26 tanker leaders' valuation and profits are expected to hit historic highs. Risk factors: Refinery utilization rates below expectations, geopolitical conflicts impacting beyond expectations, cracking spreads rapidly falling back.