The Zhitong Finance App learned that Zheshang Securities released a research report saying that current orders are historically low, supply rigidity is determined, global inventory replenishment provides demand-side support, and increased demand from 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. Continuing to be optimistic about the interpretation of the oil boom cycle, I 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 fell month-on-month in March, and the bottom of VLCC fares was solid.
The average VLCC TD3C/suezmax/aframax fares were 47,402, 38,058, and 39,278 US dollars/day, respectively, compared to -4%, -15%, and -15% in February.
Freight prices for refined oil products fluctuate greatly, reflecting the tight balance between supply and demand in the industry. Average LR2/LR1/MRTC7/TC12&11 freight rates were 59,727, 43,657, 39,192, 40,529 US dollars/day, +0.2%, -4%, -10%, and -15% compared to February, respectively.
Oil tankers have taken detours on a large scale, and finished tankers are more affected than crude oil tankers. As of April 16, 2024, 4 finished tankers passed through the Gulf of Aden, and MA7 was 48% year-on-year. Four crude oil tankers passed through the Gulf of Aden, MA7 -30% year-on-year.
Clarkson's March forecast: the difference between supply and demand for crude oil transportation between 2024-2025 is 3.3% and 2.8%; the difference between supply and demand for refined oil transportation is 5.5% and -4.3%.
Supply-side
On-hand orders are still at an all-time low. As of April 2024, the ratio of on-hand orders to capacity for tankers in the industry was 9.0%, +0.3 pct month-on-month; among them, the ratio of on-hand orders for crude oil tankers to capacity was 7.0%, an increase of 0.3 pct over the previous month;
The ratio of in-hand orders for finished tankers to capacity was 14.1%, an increase of 0.3 carats over the previous month. In March, the industry ordered 17 ships, a decrease of 39 compared to the previous month; 5 VLCC orders were placed for crude oil tankers, and 6 and 2 LR2 and MR were ordered for finished tankers, respectively.
Due to low on-hand orders, the number of deliveries is currently limited. In March 2024, the entire industry delivered 6 ships, a decrease of 3 ships. By major ship types: VLCC and Suezmax did not deliver this month, and Aframax delivered 1 ship; of finished tankers: MR delivered 3 ships, LR2 delivered 1 ship, and LR1 did not deliver 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 18 and 51 ships respectively, LR1 is expected to deliver 1 and 11 ships respectively, and MR is expected to deliver 38 and 71 ships respectively.
The price of new ships continues to rise. As of April 2024, new VLCC/Suez/AFRA ship prices were US$1.3, 0.875, and US$0.72 billion, respectively; LR2, LR1, and MR new ship prices were US$0.735, 0.59, and 49 million, respectively.
The number of ships scrapped during the boom cycle fell short of expectations. In March 2024, the industry dismantled 2 major oil tankers, including 1 Suezamax and 1 Handysize.
Demand side
U.S. crude oil production remains at an all-time high. OPEC crude oil production in March was 26.6 million b/d, an increase of 30,000 b/d over the previous month; in March, US crude oil production was 13.12 million b/d, a decrease of 180,000 barrels per day from the previous month.
The cracking price spread narrowed month-on-month, and the refinery operating rate declined month-on-month. As of 4.16, gasoline cracking spread was 32.94 US dollars/barrel, +1.16 US dollars/barrel; diesel cracking spread was 20.76 US dollars/barrel, -0.06 US dollars/barrel.
As of 4.17, the operating rate of local refineries in Shandong was 59.1%; as of 4.11, the operating rate of the main refinery was 78.9%; as of 4.5, the operating rate of the US refinery was 88.3%.
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.