According to a research report by Guosheng Securities, the VLCC TD3C freight rate index rose from WS137.5 on February 13 to WS169.4 on February 20, a significant increase of 23.2%. This rise in freight rates during the off-season has continued, reaching its highest level since May 2020. In the short term, the unexpected surge in VLCC rates during the Spring Festival period indicates a stronger-than-expected off-season for the industry. From a medium-term perspective, as the dynamics in sanctioned markets such as Venezuela, Iran, and Russia continue to evolve, the supply-demand balance in the compliant market is steadily improving. This supports the ongoing validation of the logic behind the oil shipping sector's upward cycle. The main viewpoints of Guosheng Securities are as follows:
During the Spring Festival, VLCC freight rates exceeded expectations with their increase, and overseas oil shipping stocks continued their upward trend. Based on data from Captain Energy, the VLCC TD3C freight rate index climbed from WS137.5 on February 13 to WS169.4 on February 20, marking a 23.2% gain. This off-season price strength pushed the index to a new high since May 2020. According to Wind data, major overseas oil shipping companies FRO, DHT, Teekay, and Scorpio saw share price increases of 16.94%, 13.16%, 9.47%, and 5.74% respectively during the period from February 13 to February 20, using the February 12 closing price as the baseline. Companies with VLCC as their primary operating asset, FRO and DHT, showed more pronounced gains, while Scorpio, which focuses more on product tanker transportation, lagged slightly.
The thesis of constrained non-compliant VLCC markets and improving supply-demand fundamentals in compliant markets continues to be validated. Throughout 2025, the US and EU repeatedly tightened sanctions on Russian and Iranian crude oil and related tanker assets. Coupled with the partial redirection of OPEC+ production increases towards exports, the supply-demand balance for VLCCs in the compliant market improved significantly, leading to stronger freight rates on major routes. Since January 2026, geopolitical conflicts in regions like Venezuela and Iran have further validated this logic. On one hand, Far Eastern importers have reduced purchases of sanctioned crude from Iran and Russia, shifting instead to compliant sources in the Middle East, West Africa, Brazil, and the US Gulf. This has improved the demand structure for VLCCs. According to Teekay, India's imports of Russian oil had already declined to 1 million barrels per day by January 2026, while the volume of Russian and Iranian crude held in floating storage collectively exceeded 300 million barrels. On the other hand, sanctioned VLCCs are becoming increasingly marginalized. As of February 15, the US had seized 9 sanctioned tankers, with its enforcement scope expanding from the Caribbean Sea to the Indian Ocean. The current number of sanctioned VLCCs stands at 154, representing 17% of the existing fleet, with an average vessel age of 21.3 years.
Uncertainty remains regarding the evolution of current geopolitical conflicts: (1) If sanctions are further tightened, Far Eastern importers may shift even more towards crude from compliant markets. Sanctioned vessels would then face continued risks of declining operational efficiency and earnings, while the compliant market would benefit. (2) If sanctions are lifted, bringing previously sanctioned crude back into the compliant market, and considering factors such as vessel age, operational efficiency, and insurance, sanctioned VLCCs might face potential exit from the market. This would lead to a tightening of supply-demand conditions in the compliant market.
Although the proportion of VLCCs on order has increased, the core driver of effective supply growth remains the alignment between the pace of older and "shadow" fleet retirements and the delivery schedule of new vessels. According to shipbrokers, newbuilding orders for VLCCs have accelerated since September 2025. By February 2026, the global VLCC orderbook as a percentage of the existing fleet had risen to 18.77%. From a static delivery perspective, a total of 30-40 vessels are scheduled for delivery in 2026, primarily concentrated in the second half of the year, with recent new orders slated for delivery in 2028 and beyond. However, static delivery schedules do not directly translate to the rate of effective supply growth for the industry. As analyzed previously, factors such as constraints in the sanctioned market and declining operational efficiency due to fleet aging continue to keep effective supply tight. Looking further ahead, attention must be paid to the matching of the retirement rhythm of older and shadow fleet vessels with the pace of new vessel deliveries.
Sinokor's aggressive acquisition of VLCC assets is increasing industry concentration, potentially enhancing freight rate elasticity during the current upcycle. South Korea's Sinokor Merchant Marine is significantly expanding its presence in the VLCC market through acquisitions and chartering activities. According to industry data, the company now controls a 24% share of the spot compliant market in terms of capacity. Its fleet has an average age of 12.6 years, with approximately 70% of its vessels being over 10 years old, which is close to the global VLCC fleet average age of 13.2 years. Unlike the container shipping sector, pricing power in oil shipping often does not reside with shipowners for most of the time. However, the combination of increased market concentration, tight supply-demand conditions in the compliant market, and the relatively low number of new vessel deliveries in the first half of the year could lead to enhanced freight rate elasticity.
In terms of investment targets, key companies to focus on include China Merchants Energy Shipping and COSCO SHIP ENGY. Additionally, China Merchants Nanjing Oil Tanker is also worth monitoring.
Risk factors include a slower-than-expected exit of the shadow fleet, a significant contraction in crude oil demand, and a large-scale shift of product tanker fleets into crude oil transportation.