CITIC SEC has released a research report forecasting that the oil and bulk shipping sectors will enter a cycle realization phase in 2026. On one hand, fleet aging and the fragmentation of compliant and non-compliant fleets will lead to insufficient market supply capacity. As of November 2025, sanctioned capacity accounted for 15.7% of the global VLCC fleet, an increase of 5.8 percentage points since the start of the year, causing some sanctioned capacity to gradually convert into floating storage. On the other hand, CITIC SEC estimates that the proportion of VLCCs over 20 years old will increase by 4 percentage points to 23% by 2027, and new vessel deliveries may struggle to meet the replacement demand for aging ships, with strong supply-side constraints becoming more apparent in 2026. Against a backdrop of structural demand growth in compliant markets and low oil prices in 2026, crude oil restocking demand is expected to be the primary marginal variable. CITIC SEC projects the annualized VLCC freight rate benchmark to settle between $60,000 and $75,000 per day. During this cycle upswing realization period, the release of VLCC freight rate elasticity is anticipated to drive rapid profit growth for fleets next year. In the short term, as the seasonal low season for transport approaches, it is advised to position strategically.

Dry bulk shipping is expected to benefit from downstream demand growth driven by the US interest rate cut cycle and China's anti-involution policies, coupled with marginal increments from the Simandou iron ore project commencement and potential China-US soybean trade, leading to an anticipated rise in dry bulk demand. Capesize dry bulk vessels are projected to be the primary contributors to dry bulk freight rate growth, while Panamax dry bulk vessels are expected to benefit from the potential China-US soybean trade. CITIC SEC's main views are as follows:

Oil Shipping: Focus on Marginal Demand Increments Amid Tight Supply. In 2026, against a backdrop of structural demand growth in compliant markets and low oil prices, crude oil restocking demand is likely the key marginal variable. The release of freight rate elasticity during the cycle upswear realization period is expected to drive rapid profit growth for fleets next year. Short-term, with the seasonal transport low season approaching, strategic positioning is recommended. Reviewing the 2025 tanker freight rate trend, VLCCs (Very Large Crude Carriers) regained their leading position in the tanker market. Sanction effects gradually transmitted from the demand side to the supply side, with fleet aging and the compliant/non-compliant fleet split leading to insufficient market supply capacity. Furthermore, stronger-than-expected Atlantic market cargo volumes and the opening of crude oil arbitrage windows boosted crude demand in compliant markets like West Africa, Brazil, and OPEC, with peak season TD3C voyage TCE (Time Charter Equivalent) rates exceeding $140,000 per day for some voyages. The supply-demand dynamics since August 2025 may signal the beginning of a trend; CITIC SEC forecasts the 2026 VLCC freight rate benchmark to be between $60,000 and $75,000 per day, with freight rate elasticity release during the cycle upswing expected to drive rapid fleet profit growth next year. Short-term, strategic positioning is advised as the seasonal low season nears.

Supply Side: Future VLCC fleet growth need not be overly concerning, as longer delivery cycles and further aging will smooth supply growth. According to Clarksons, VLCC supply growth is projected at 2.6% for 2026, with the main delivery peak concentrated in 2027. However, CITIC SEC estimates the proportion of VLCCs over 20 years old will rise by 4 percentage points to 23% by 2027, with rapid aging offsetting a significant portion of new vessel deliveries. The increasing number of sanctioned VLCCs will push some non-compliant vessels into floating storage capacity, and removal from sanction lists is typically a lengthy process. Even if geopolitical tensions ease, the lower returns and operational efficiency of older vessels are expected to have a relatively limited impact on compliant capacity.

Demand Side: Reviewing 2025 freight rates, VLCCs regained market leadership, driven by increased Atlantic cargo and OPEC+ production hikes, leading to rapid rate increases since August. Looking to 2026, against a backdrop of structural demand growth in compliant markets and low oil prices, crude oil restocking demand is likely the key marginal variable. OPEC+ production increases in 2026 are expected to be a major marginal variable, resonating with Brazil's crude production growth. With a lower oil price benchmark, US shale oil development is constrained, and non-compliant market demand-side adjustments are largely complete, suggesting limited future marginal increments. OPEC's official announcement indicates a seasonal pause in OPEC+ production increases in Q1 2026. Future OPEC+ actual production changes require monitoring, while non-OPEC countries will continue to support demand; Clarksons projects an 11% year-on-year increase in Brazilian crude exports for 2026.

Dry Bulk: The US interest rate cut cycle is expected to enhance demand momentum in emerging economies, while production growth from the Simandou iron ore project and potential China-US soybean trade will provide marginal increments for Cape and Pana vessels. In H1 2025, the BDI index declined year-on-year due to falling upstream commodity prices and weak demand. Entering H2 2025, resource reserves coupled with increased upstream shipments led to a rapid recovery in commodity transport demand, aided by China's anti-involution policies, with large vessels contributing over half the index growth. For 2026, emerging economy demand momentum is expected to improve under the US rate cut cycle, while the marginal impact of the real estate sector on dry bulk will gradually weaken.

Supply Side: Dry bulk vessel supply is expected to maintain moderate growth overall in 2026-2027. By vessel type, large vessel growth is more constrained. Clarksons forecasts Cape vessel supply growth in 2026/2027 to be 1.5/1.2 percentage points lower than the industry average, with relatively low orderbooks limiting future fleet growth. A relatively younger fleet age distribution is considered the main reason for Cape's lower orderbook compared to the industry. Meanwhile, Clarksons projects Panamax vessel supply growth in 2026/2027 to be 1.8/0.4 percentage points higher than the industry average. However, the Panamax fleet is older, with vessels over 20 years old comprising 14% of capacity, 9 percentage points higher than the Cape fleet. CITIC SEC is optimistic about a gradual dry bulk cycle upswing, with Capesize vessels expected to be the primary contributors to freight rate growth.

Demand Side: Under the US rate cut cycle, emerging economy demand momentum is expected to improve. Intermediate product exports may marginally alleviate previous constraints on dry bulk export demand growth. The real estate sector's impact is projected to gradually weaken, with growing steel demand from manufacturing offsetting some of the decline in construction steel demand. The gradual ramp-up of the Simandou project will increase demand for Cape vessels. Assuming the Simandou project, commencing operations at end-2025, reaches 30%-50% of full capacity in 2026, it is estimated to boost global iron ore seaborne demand by 2.1%-3.6%, equivalent to 53-88 Capesize vessels. Additionally, the potential China-US soybean trade's positive impact on Panamax vessels warrants attention.

Risk Factors: Ship sanction effects falling short of expectations, crude oil demand underperformance, a significant surge in new VLCC orders, slower-than-expected recovery in domestic demand, delays in the Simandou project's operational timeline.

Investment Strategy: New vessel deliveries may be insufficient to replace aging ship demand, suggesting strong VLCC supply constraints will become more evident in 2026. With structural demand growth in compliant markets and low oil prices, crude restocking is a key marginal variable. The projected annualized VLCC freight rate benchmark is $60,000-$75,000 per day, with freight rate elasticity expected to drive rapid fleet profit growth during the cycle upswing. Short-term, strategic positioning is advised ahead of the seasonal low season. For dry bulk, multiple factors will support downstream demand recovery. The Simandou project and potential China-US soybean trade will benefit Cape and Panamax vessels, with Capesize vessels being the main contributors to freight rate growth. Industrial relocation from supply chain restructuring and endogenous economic growth are expected to be key supports for resilient intra-Asia cargo volume growth over the next two years. Against supply constraints, shipowners who have pre-emptively secured new vessel capacity may be the first to benefit from growing Southeast Asian shipping demand.