In the context of production cuts in the Middle East, shipments from long-distance regions such as the Gulf of America, South America, and West Africa have increased, which is expected to further drive up demand per ton of nautical miles.
The Zhitong Finance App learned that Zheshang Securities released a research report saying that oil freight rates rose month-on-month in February, and freight rates for refined oil products were even stronger. Tankers have already taken detours on a large scale. Currently, refined oil tankers are more affected than crude oil tankers. Currently, on-hand orders are at a historically low level, supply rigidity is determined, global inventory replenishment provides demand-side support, and increased demand in emerging Asia-Pacific countries such as China and India is driving up demand for oil transportation. The restructuring of global oil trade after the Russia-Ukraine conflict led to a significant increase in transit distances. Furthermore, against the backdrop of production cuts in the Middle East, shipments from long-distance regions such as the Gulf of America, South America, and West Africa have increased, which is expected to further drive up demand for tons and nautical miles.
Investment advice: Continue to be optimistic about the interpretation of the oil boom cycle. We recommend COSCO Haineng (600026.SH), China Merchants Shipping (601872.SH), and China Merchants South Oil (601975.SH).
The views of Zheshang Securities are as follows:
Oil transportation supply and demand balance sheet
Freight rates increased month-on-month in February, and freight rates for refined oil products were even stronger. The average VLCC/suezmax/aframax fare was 47,332, 45,032, 46,416 US dollars/day, compared to +14%, -22%, and -26% in January.
VLCC freight rates jumped during the Spring Festival, reflecting the current tight supply and demand in the industry. Average LR2/LR1/MRTC12&11/TC2&T14 freight rates were 59,623, 45,423, 34,841, 47,449 US dollars/day, +3%, -2%, +7%, and +34% compared to January, respectively.
Tanker detours have taken off on a large scale. Currently, finished tankers are more affected than crude oil tankers. As of March 13, 2024, there were 5 finished tankers passing through the Gulf of Aden. MA7 was -57% compared to early December. There are 10 crude oil tankers passing through the Gulf of Aden. MA7 is -27% compared to early December.
Clarkson's February forecast: the difference between supply and demand for crude oil transportation between 2024-2025 is 4.1% and 2.2%; the difference between supply and demand for refined oil transportation is 6.6% and -4.3%.
Supply-side
On-hand orders are still at an all-time low. As of March 2024, the ratio of on-hand orders to capacity for tankers in the entire industry was 8.2%, +0.8 pct month-on-month; among them, the ratio of on-hand orders for crude oil tankers to capacity was 6.1%, an increase of 1.1 pct over the previous month;
The ratio of on-hand orders for finished tankers to capacity was 13.5%, an increase of 0.1 pct over the previous month. In February, the industry ordered 38 ships, an increase of 5 over the previous month; VLCC and Suezmax ordered 16 or 3 crude oil tankers, and LR2 ordered 2 for finished tankers.
Due to low on-hand orders, the number of deliveries is currently limited. In February 2024, the entire industry delivered 5 ships, a decrease of 11 ships. By major ship types: VLCC and Aframax were not delivered this month, and Suezmax delivered 1; of the finished tankers: MR delivered 1 ship, LR2 delivered 1 ship, and LR1 was not delivered this month.
The estimated delivery volume of crude oil tankers is limited in the next two years: in 2024-2025, VLCC is expected to deliver 2 and 5 ships respectively, Suezmax is expected to deliver 8 and 29 ships respectively, and Aframax is expected to deliver 15 and 7 ships respectively; LR2 is expected to deliver 19 and 50 ships respectively, LR1 is expected to deliver 1 and 11 ships respectively, and MR is expected to deliver 38 and 70 ships respectively.
The price of new ships continues to rise. As of April 2024, VLCC/Suez/AFRA new ship prices were US$1.285, 0.86, and 71 million, respectively, up 0.4%, 0.6%, and 0.7% month-on-month; LR2, LR1, and MR new ship prices were US$0.735, 0.59, and 0.49 million, respectively, up 0%, 0.9%, and 1% month-on-month.
The number of ships scrapped during the boom cycle fell short of expectations, and the main types of tankers in the industry were not scrapped in February 2024.
Demand side
U.S. crude oil production remains at an all-time high. OPEC crude oil production in February was 26.57 million b/d, an increase of 200,000 b/d over the previous month; in February, US crude oil production was 13.3 million b/d, an increase of 350,000 barrels over the previous month.
The cracking price spread narrowed month-on-month, and the refinery operating rate declined month-on-month. As of 3.13, the difference in gasoline cracking price was 31.77 US dollars/barrel, +0.11 US dollars/barrel; diesel cracking spread was 27.73 US dollars/barrel, -3.09 US dollars/barrel.
As of 3.13, the operating rate of local refineries in Shandong was 58.7%, -0.3 pct compared to last week. As of 3.14, the operating rate of the main refinery was 80.73%. As of 3.8, the operating rate of US refineries was 86.8%, +1.9 pct compared to last week.
The US SPR increased month-on-month, but it is still at an all-time low. As of 3.8, US strategic oil reserves were 362 million barrels, an increase of 600,000 barrels over the previous week. In January, the OECD commercial crude oil reserves were 1,416 million barrels, down 17 million barrels from the previous month.
Risk warning: 1) The recovery in global oil consumption fell short of expectations, leading to a decline in oil transportation demand; 2) further OPEC production cuts, leading to a decline in cargo volume, leading to a decline in oil transportation demand; 3) geopolitical risks; 4) risk of measurement bias, etc.