Guosheng Securities: Continued increase in OPEC+ production combined with stricter US sanctions, marginal benefits in oil transportation fundamentals

The Zhitong Finance App learned that Guosheng Securities released a research report saying that since the beginning of August, VLCC tariffs have continued to rise due to the continuous increase in OPEC+ production, the imposition of tariffs imposed by the US on the grounds of Russian oil imports from India, and short-term pallets. Using the CT1 route in the CTFI index (Middle East Bay (Rastanura, Saudi Arabia) to Ningbo, China) as a reference, the freight rate rebounded from less than 20,000 US dollars/day at the end of July to 471,000 US dollars/day (normal speed) on August 22. Crude oil transportation, especially in the VLCC market, is relatively rigid. Demand in the compliant market ushered in marginal favorable conditions against the backdrop of the acceleration of OPEC+ production growth and the continued tightening of US sanctions against Iran and Russian crude oil, and the industry entered a traditional peak season in the fourth quarter. It is expected that the freight rate center will rise.

Guosheng Securities's main views are as follows:

Since the imposition of tariffs between China and the US on April 3, the yield of overseas oil transport stocks and A-share oil transportation stocks has broken out of a clear scissor gap

Since the US announced the imposition of tariffs on China on April 3, 2025, US oil transport stocks have gradually emerged from the negative feedback sentiment of “global economic recession - decline in crude oil demand - drop in transportation demand”. Major oil transportation companies TEEKAY/SCORPIO TANKERS/Frontline Shipping/DHT Holdings/INTERNATIONAL SEAWAYS, etc. reached 47.46%/44.90%/20.39%/46.42% from April 3 to August 22, respectively; during the same period, COSCO Marine Energy and Commercial shipping yields during the period were 0.23% and 4.68%, respectively. The yield of A-share oil transport stocks significantly outperformed overseas oil shipping stocks. What is behind the scissor yield gap is mainly the difference in expectations between US stocks and A-share investors in the oil transportation industry.

In August, during the low season in the industry, VLCC freight rates continued to rise

From mid-January to May 2025, the VLCC freight rate basically remained high. Among them, the April freight rate exceeded 50,000 US dollars/day, and the off-season was not easy; since June 13, due to the conflict between Iran and Israel, shipping risks in the Middle East region increased, and shipowners' psychological expectations further supported the freight rate. VLCC freight rates rose rapidly from 184,000 US dollars/day on the 13th to 72,200 US dollars/day on June 24; since then, due to the end of the conflict between Iraq and Israel, market sentiment cooled down, and the freight rate continued to adjust. However, since entering August, due to the continued increase in OPEC+ production, the imposition of tariffs by the US on the grounds of India's imports of Russian oil, and short-term pallets, VLCC freight rates have continued to rise. Using the CT1 route in the CTFI index (Middle East Bay (Rastanura, Saudi Arabia) to Ningbo, China) as a reference, the freight rate rebounded from less than 20,000 US dollars/day at the end of July to 471,000 US dollars/day (normal speed) on August 22.

OPEC+ continues to increase production, which favors crude oil demand in the compliant market

Supply in the crude oil transportation market is rigid, and freight rate flexibility comes from demand. OPEC+ reached a decision on December 5, 2024 to gradually and flexibly abolish voluntary production cuts of 2.2 million barrels per day starting April 1, 2025. Judging from the monthly production decision in 2025, the pace of OPEC+ production growth accelerated, from 138,000 b/d in April to 411,000 b/d in May-July, to 548,000 b/d in August and 547,000 b/d in September. Increased crude oil production in OPEC+ member countries will help drive VLCC demand in the compliant market. Follow up on the extent to which OPEC+ production increases are transferred to exports after the peak of summer oil use in the Middle East.

The US continues to strengthen sanctions related to Iranian crude oil, involving Chinese entities, which is beneficial to the compliance market, but we still need to pay attention to the actual implementation of the sanctions

The United States has imposed multiple rounds of sanctions against Iran and Russia in recent years, and they have been continuously escalated. According to OFAC's official website, the US further added Iranian crude oil-related entities and ships to the SDN list on August 21. This time, it includes 8 tankers, 1 individual, and 13 shipping entities. The US has strengthened sanctions against Iran and Russia and involved Chinese entities. Under the actual implementation of sanctions, Iranian crude oil exports and shadow fleet demand are expected to be affected, and transportation demand from the Far East is expected to shift to compliant markets such as the Middle East and West Africa, which is beneficial to VLCC compliance market demand.

Aspect of the target

According to Wind's unanimous expectations, as of August 22, COSCO Haineng's A shares correspond to a 2025 valuation of 10.16 times PE, and China Merchants Shipping's 2025 valuation is 8.66 times PE. You can pay attention to COSCO Haineng (600026.SH,01138) and China Merchants Shipping (601872.SH).

Risk Alerts

Demand for crude oil fell sharply, the increase in OPEC+ production fell short of expectations, and the implementation of sanctions fell short of expectations.