Shenwan Hongyuan Group Co., Ltd. released a research report indicating that shipping rates have continued climbing throughout August, breaking out of the seasonal downturn ahead of schedule. This marks a clear divergence from rates during the same period in 2023 and 2024, with the turning point occurring earlier than expected. Recent supply reductions from Iran, Russian oil, and Venezuela are set to boost future compliant crude oil demand. Additionally, Middle Eastern production increases are expected to gradually ramp up during the peak demand season, with September-December crude oil demand (particularly compliant crude) projected to improve further, supporting continued strong rate performance during the fourth quarter peak season.
VLCC TD3C-TCE rates surged 23% in a single day, with off-season rates breaking through $50,000 per day. US-listed stocks including FRO, ECO, and DHT have already begun rising alongside shipping rates, while A-H share oil transport stocks are positioned for catch-up gains. Given their relatively low positioning and significant catch-up potential, the firm recommends China Merchants Energy Shipping (601872.SH).
**Key factors behind recent VLCC rate increases:**
From a macro perspective, Powell indicated at the Jackson Hole symposium that while inflation remains a concern, rising employment market risks may prompt the Federal Reserve to cut rates in September. Strengthening rate cut expectations have improved cyclical demand outlook, driving up commodity and transportation prices.
On the micro level, the price spread between US Gulf WTI crude and Middle Eastern crude has widened, opening arbitrage opportunities for west-east trade and increasing long-haul transportation. With fleets heading west, Middle Eastern shipping capacity has tightened. Under tight capacity conditions, September Middle Eastern cargo continues, creating supply-demand imbalances that have driven rates sharply higher. Suezmax tanker rates are operating strongly at up to $60,000 per day, with some demand spillover to the VLCC market.
**Off-season turning point arrives early, right-side trend emerges with focus on continued peak season rate increases:**
August rates have continued climbing, breaking out of seasonal weakness ahead of schedule and showing clear divergence from the same period in 2023-2024, indicating an early turning point. Recent supply reductions from Iran, Russian oil, and Venezuela will increase future compliant crude oil demand. Escalating Iranian sanctions have reduced exports, with crude oil exports in the last four weeks falling from the previous 1.7-1.9 million barrels per day to around 1.3-1.4 million barrels per day. Russian crude oil exports have declined due to escalating US-European sanctions (crude export price cap reduced from $60/barrel to $47.6/barrel), with recent export volumes dropping from the previous 3.5 million barrels per day to around 3.1-3.2 million barrels per day. The US has again authorized Chevron's operating license in Venezuela, with Venezuelan crude now redirected to America and Far East exports significantly declining to zero in recent weeks.
Furthermore, Middle Eastern production increases are expected to gradually ramp up during the peak demand season, with September-December crude oil demand (particularly compliant crude) projected to improve further, supporting continued strong fourth quarter peak season rate performance.
**Stable Chinese demand with global economy entering active inventory rebuilding phase:**
Based on export data statistics, China's crude oil imports increased 4.6% year-over-year in the first seven months of 2025. Excluding Iran, Venezuela, and Russia, crude oil imports grew 5.3% year-over-year, with incremental volumes mainly from West Africa, Brazil, and Canada. In the first seven months, China imported approximately 10.9 million barrels per day of crude oil, with about 325,000 barrels per day flowing to inventory, representing approximately 3.0% of total imports. Chinese apparent demand has remained generally stable while entering an active inventory rebuilding phase, with current storage capacity rates still having room below historical peaks. Additionally, Europe, America, Japan, and South Korea all achieved inventory accumulation in the first seven months, increasing by approximately 150,000 and 50,000 barrels per day respectively.
**VLCC fleet supply-demand gap persists with confirmed upward business cycle:**
Fleet aging has reduced effective capacity, with the 2025-2026 rate center expected to continue rising. Based on effective capacity calculations, VLCC effective capacity growth rates for 2025-2027 are projected at -4.1%, -0.3%, and +1.8% respectively. Assuming 30 VLCC deliveries annually from 2028-2030, effective capacity growth rates would be -0.5%, -1.0%, and -1.2% respectively. Supply concerns are minimal until at least 2030.
On the demand side, oil-producing country production increases continue driving trade volume growth, with projected demand growth rates of approximately 2.3%, 1.4%, and 1% for 2025-2027 respectively (2025-2026 figures reference median forecasts from EIA, IEA, and OPEC). Therefore, VLCC supply-demand growth rate differentials are -6.4%, -1.7%, and 0.8% respectively, overall favoring continued rate center elevation.
**US stocks lead gains with significant A-H catch-up potential:**
China Merchants Energy Shipping trades at 0.84x compared to US-listed FRO at 1.16x and DHT at 1.06x. From a rate elasticity perspective, each $10,000/day increase in China Merchants Energy Shipping's tanker fleet TCE adds 1.53 billion yuan (52 VLCC vessels, 8 Aframax vessels). Each $10,000/day increase in dry bulk rates adds 1.51 billion yuan in pre-tax profit (16 Cape vessels, 6 Panamax vessels, 37 Supramax and Handymax vessels).
**Risk factors:** Changes in geopolitical conflicts; tariff policies triggering global economic recession; Middle Eastern production increases falling short of expectations.