Caihang Securities: If Geopolitical Tensions Ease, How Should We View Tanker Demand Under Scar Effects?

Caitong Securities released a research report stating that, under the multiple favorable catalysts such as upstream capacity expansion, stricter compliance, and Changjin’s control, the crude oil shipping industry has entered an economic cycle. The current blockage of the Strait of Hormuz and the subsequent potential excess inventory replenishment could further drive industry prosperity. Core recommended stocks include COSCO Shipping (601872.SH), China COSCO Energy (01138), and focus on China Merchants Energy Shipping (601975.SH).

Caitong Securities’ main points are as follows:

Background

Since the U.S.-Israel joint military action against Iran on February 28, 2026, the conflict has entered its third week. Currently, it is in a state of high-intensity confrontation, ongoing mutual strikes, and no declaration of full-scale war. In this context, the Iranian Revolutionary Guard announced full control over the Strait of Hormuz, explicitly prohibiting U.S. and allied ships from passing, while promising that ships from other countries can navigate normally without being affected by the conflict. Before the conflict, Middle Eastern crude oil exports were about 17 million barrels per day. Even considering full capacity replacement by Saudi Arabia’s east-west pipelines, UAE’s Fujeirah pipeline, and strategic reserve releases by IEA member countries, the global net crude oil deficit remains around 8 million barrels per day.

Production countries have reduced capacity under storage pressure, and future rebalancing needs are expected

If the Strait of Hormuz is completely blocked, the combined onshore and offshore storage capacity of Middle Eastern oil-producing countries can only absorb about 25 days of stranded production. Beyond that, production may be forced to halt entirely due to storage limitations. Currently, due to storage capacity constraints, some Middle Eastern countries have begun reducing oil output. As of March 10, 2026, Saudi Arabia, the UAE, Iraq, and Kuwait have cut production by up to 6.7 million barrels per day. Considering the main sources of fiscal revenue for Middle Eastern countries, oil producers are motivated to resume production quickly after the blockade is lifted to restore cash flow. Therefore, the initial phase of rebalancing demand could be strong, supporting high freight rates.

IEA releases strategic reserves to hedge oil shortages; scar effects may lead to excess inventory replenishment downstream

The IEA requires member countries to hold strategic petroleum reserves equivalent to at least 90 days of net imports from the previous year. To address the global oil supply tension caused by U.S. and Israeli military strikes on Iran, on March 11, 2026, the IEA announced that 32 member countries agreed to release 400 million barrels of strategic reserves, with the U.S. releasing 172 million barrels, expected to be completed within 120 days. With the current global net crude oil deficit at about 8 million barrels per day, a one-month blockade of the Strait of Hormuz could result in a deficit of 24 million barrels. To replenish this deficit within six months after the blockade is lifted (to offset the consumed strategic reserves), approximately 40 VLCCs would be needed, accounting for about 4.4% of the current total VLCC fleet and 5.3% of compliant VLCCs. Additionally, considering the scar effects that generate downstream excess inventory replenishment needs, VLCC demand may exceed expectations in the medium term.

Risk warnings: Significant decline in crude oil demand, OPEC+ production increase below expectations or shift to cutbacks, sanctions not fully implemented, environmental policies delayed, war risks, etc.