China Merchants Energy Shipping hits a new all-time high

Ask AI · Has the super cycle of oil transportation truly begun? How do supply and demand resonate?

Text by Tai Luo

On April 2nd, COSCO Shipping Tanker’s stock price surged significantly, with market value reaching around 160 billion yuan, hitting a record high.

Meanwhile, concept stocks in the oil shipping sector such as COSCO Shipping Energy, China COSCO Shipping Corporation, and China Shipping Development performed strongly.

By the end of July 2025, China’s imported crude oil freight index hit a multi-year low of 880 points, then the market showed signs of “not weakening in the off-season,” and in the traditional peak season’s fourth quarter, it reached a new five-year high. Although there have been some fluctuations since, freight rates remain at relatively high levels.

In fact, after 2008, oil shipping prices have remained at low levels for a long time, with only two pulse-like increases in 2020 and 2022, but they quickly returned to stability.

Since the second half of 2025, the sustained prosperity of oil shipping prices has not been driven by sudden geopolitical events. This perhaps indicates that the industry has entered a new upward cycle.

The rise in freight rates has also been reflected in corporate performance. On March 26th, COSCO Shipping Tanker announced that in 2025, operating revenue was 28.18B yuan, up 9.22% year-on-year. Net profit was 6.01B yuan, up 17.71% year-on-year. Typically, an increase in oil shipping prices takes 1-3 months to transmit to company performance, mainly affected by voyage completion and revenue recognition cycles, contract settlement methods, and financial accounting. Based on this, it is highly probable that the first quarter of 2026 will see continued high growth in performance.

However, the current secondary market still has doubts about whether the oil shipping cycle has truly reversed, and this cautious attitude is understandable. The oil shipping industry has not exited a downturn for 16 years, and in 2025, Wall Street’s last major investment bank, Jefferies, announced it would exit systematic sell-side research on the shipping sector.

Nevertheless, industry insiders such as shipowners and charterers are more optimistic about the industry entering an upward cycle. Recently, executives from the world’s top oil tanker company Frontline stated: “No need to guess anymore, the super cycle of oil shipping is not just a story, but a reality happening right now, and this feast has only just begun.”

COSCO Shipping Tanker also indicated in its earlier annual report that after emerging from a dark and long tunnel, the oil tanker market may enter the most prosperous and sustainable upward cycle in 20 years.

So, how should we view the current oil shipping cycle?

Historically, major cycles in the oil shipping market often require positive changes on both the supply and demand sides. So, what about this time?

First, looking at the supply side, it is mainly influenced by the number of ships (new orders and scrapped old ships) and operational efficiency (congestion, speed, downtime, etc.).

Currently, there are 183 oil tankers worldwide over 20 years old (with an additional 195 ships to be added in the next five years), accounting for about 20% of total capacity. Ships over 15 years old make up more than 50%, while new ships under 10 years old only account for about 15%.

The typical depreciation period for VLCCs (Very Large Crude Carriers) is 25 years. Ships over 20 years old can still operate but carry increased risks of oil leaks and significantly reduced operational efficiency.

According to China Ocean Shipping, ships under 13 years old can complete five transatlantic-Indian Ocean-Far East voyages per year. Ships aged 14-18 years can increase to six voyages annually but tend to shift toward medium-short routes like Middle East–Far East, reducing actual operational days. After 18 years, efficiency declines rapidly, and these ships often gradually exit the compliant market, turning to transport “black oil” from Russia, Iran, Venezuela, or being used as floating storage.

Besides the compliant market, there is a considerable “shadow fleet” (handling about 10%-18% of offshore oil trade), which also faces risks of being squeezed out or exiting.

After Maduro’s arrest in Venezuela, hundreds of old oil tankers operating on gray income faced sanctions or suspension, leading to a premium on compliant capacity. This was one of the triggers for the early-stage rally in the A-share oil shipping sector.

Thus, it is evident that the overall capacity of over 900 VLCCs globally is decreasing, and compliant capacity is further squeezed by the shrinking shadow fleet.

Regarding new ship orders, as of the end of 2025, VLCCs on order totaled 29.49 million deadweight tons, about 10.6% of existing capacity. Since new orders in 2022-2023 have been at multi-decade lows, even with normal deliveries over the next three years, new ship deliveries will be far below historical averages. Moreover, most mainstream shipyards are occupied with container ship orders, and new oil tanker orders are generally scheduled for delivery after 2028.

Historically, the peak of VLCC deliveries occurred between 2006 and 2008. These ships will reach over 20 years of age in the next three years, entering scrapping or uneconomical operation phases, while new deliveries are expected to be much lower than the number of aging ships leaving the fleet.

Turning to demand, there are also positive signals.

During the pandemic, OPEC+ repeatedly cut production significantly to maintain oil prices, leading to sluggish oil shipping demand. But from April 2025, OPEC abandoned plans to cut 2.2 million barrels and 1.66 million barrels, leaving only a remaining 2 million barrels of cut that have not yet been canceled. This adjustment has greatly boosted the demand outlook for oil shipping.

In addition to OPEC, oil-producing countries like Brazil, Guyana, and Argentina are steadily increasing capacity, providing more stable supply sources. Moreover, against the backdrop of the Russia-Ukraine conflict, Europe’s crude oil imports have shifted from Russia to the Middle East, Brazil, the US, and other regions. China has also increased crude imports from Brazil and other non-Russian sources. These changes have extended average voyage distances, indirectly boosting demand.

Specifically, routes from South America to the Far East and West Africa to the Far East are between 10,000 and 12k nautical miles, compared to about 6,000 nautical miles for Middle East–Far East routes. The increase of roughly 5,000 nautical miles nearly doubles the demand for ton-miles per cargo.

Overall, whether in terms of volume, ship age structure, or new ship deliveries, supply and demand are resonating, increasing the likelihood that a new major cycle in the oil shipping market is beginning.

Currently, many countries including China are strengthening energy and resource security strategies. Over the past year, the valuation uplift in the non-ferrous metals sector has been closely related to the “resource security” narrative. Under geopolitical uncertainties, the oil shipping industry also possesses certain energy security attributes. Of course, the fundamental support still comes from the performance elasticity driven by the freight cycle.

Disclaimer

This article involves content related to listed companies, based on the author’s personal analysis and judgment of publicly disclosed information (including but not limited to interim and annual reports, official interactive platforms, etc.) provided by the companies in accordance with their legal obligations; the information or opinions herein do not constitute any investment or other commercial advice. MarketWatch does not assume any responsibility for actions taken based on this article.

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