Tanker expert turns constructive on VLCC freight rates: Atlantic exports and rerouting demand are the core supports

Overview

This report summarizes Goldman Sachs’ expert call on the tanker market and the impact of the Strait of Hormuz closure. The expert comes from the Far East business of a tanker pool manager and has more than 10 years of tanker chartering experience. The core view is that although the closure of the Strait of Hormuz weakens Middle East exports, increasing exports from the U.S. Gulf, Latin America, and West Africa, together with longer sailing distances in Atlantic routes, will continue to provide strong support for VLCC TCE; if the strait reopens, the tanker freight rate outlook over the next two years could become more constructive.

Core views

The expert believes the key issue in the VLCC market is not simply vessel oversupply, but efficiency deterioration caused by route rerouting, longer sailing distances, longer ballast time, and fleet redeployment. After Middle East exports shifted toward ports such as Yanbu, Fujairah, and Oman, some demand still remains; meanwhile, incremental exports from the U.S. Gulf, Brazil, Latin America, and West Africa increase ton-mile demand. Sinokor has expanded its market influence and pushed up benchmark freight rates by acquiring second-hand VLCCs, but it will be increasingly difficult to replicate this strategy going forward. In the medium term, mismatches between replacement demand for older vessels and the pace of newbuild deliveries keep the VLCC supply and demand structure relatively favorable.

Analysis framework

The report uses expert interviews to assess tanker market supply and demand and freight rate direction from dimensions including export volume changes caused by geopolitical conflict, TCE by route, fleet utilization, ballast rate, vessel supply, second-hand vessel consolidation, and newbuild deliveries. It focuses on changes in the Middle East, U.S. Gulf, Latin America, West Africa, and Far East routes, and supports its conclusions with operating indicators such as WS, TCE, mb/d, and voyage days.

Methodology notes

• industry_supply_demandTanker ton-mile supply and demand analysis

  Tanker freight rate direction is judged by export volume, voyage length, fleet utilization, and vessel deliveries.

  Even if cargo volumes fall, ton-mile demand and TCE may still rise if voyage lengths extend significantly, ballast time increases, or redeployment efficiency declines.

• shipping_rate_metricsTCE and WorldScale freight framework

  TCE measures vessel equivalent time-charter earnings, while WorldScale is used for tanker spot freight quotations.

  The report uses indicators such as U.S. Gulf-to-China TCE, Oman-to-Far East WS, and West Africa WS to gauge freight rate strength across regions.

• scenario_analysisStrait of Hormuz closure and reopening scenario analysis

  Compares export volumes, rerouting, and freight rate elasticity under two scenarios: continued closure versus reopening of the strait.

  The expert believes that Atlantic routes support VLCC TCE if the closure continues; if the strait reopens, Middle East VLCC TCE could move even higher.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• VLCC

  core beneficiary asset

  Strengths

  Longer voyages, export rerouting, and lower redeployment efficiency support TCE; medium-term newbuild deliveries are insufficient to fully replace older vessels.

  Weaknesses

  Cargo load factor has fallen below 47%, and there is spare capacity in some regions.

  Comparison

  Compared with the traditional roughly 50-day round trip from the Middle East, U.S. Gulf round trips can reach about 120 days, significantly amplifying ton-mile demand.

  Risks

  Changes in the Strait of Hormuz situation, sanctions restrictions, vessel delivery pace, and demand fluctuations could all affect freight rates.

• Aframax and Suezmax

  regional beneficiary assets

  Strengths

  Some U.S. Gulf ports are better suited to Aframax and Suezmax, and their related TCEs are also strengthening.

  Weaknesses

  The report provides less quantitative data than for VLCCs, so visibility is lower.

  Comparison

  VLCC remains the focus of the report, while Aframax and Suezmax mainly reflect additional benefits from the fit of U.S. Gulf ports.

  Risks

  Changes in port structure, regional export volumes, and vessel substitution relationships could weaken support.

• LNG transportation-related assets

  disrupted assets

  Strengths

  Supply constraints may increase attention to some substitute energy and transport chains.

  Weaknesses

  LNG exports linked to Qatar and Iraq have fallen to zero, and the expert expects Qatar LNG mid-term capacity to decline by 17%.

  Comparison

  Compared with crude oil transportation, which still has rerouting options, LNG is more directly constrained by the Strait of Hormuz disruption.

  Risks

  Geopolitical risks, capacity declines, and limited export routes.

• LPG transportation-related assets

  constrained assets

  Strengths

  India’s rigid demand provides some end-demand support.

  Weaknesses

  Current LPG exports can only meet India’s needs, with limited regional flexibility.

  Comparison

  Compared with VLCC crude oil transportation, LPG export recovery is more constrained by end demand and transit channels.

  Risks

  Continued closure of the Strait of Hormuz, regional demand priorities, and logistics constraints.

• Hengli Heavy Industry 603268.SS

  ship supply-side related name

  Strengths

  2028 additional delivery capacity depends on the completion of its phase-III shipyard and capacity ramp-up.

  Weaknesses

  If expansion accelerates, it could increase future supply pressure.

  Comparison

  Its impact is mainly on future VLCC supply pace rather than current spot freight rates.

  Risks

  Capacity expansion pace, delivery schedule, and changes in newbuild orders.

Key data

• Persian Gulf crude exportsfell from 14–15 mb/d to about 7 mb/dExports were rerouted through paths such as Saudi Yanbu, UAE Fujairah, and Oman Mina Al Fahal.
• Pre-war Persian Gulf refined product exports4–5 mb/dCurrent exports are significantly constrained; after meeting domestic demand, Saudi Arabia has roughly 1 mb/d of export quota.
• LNG exportsfell to zeroMainly involving Qatar and Iraq; the expert expects Qatar LNG mid-term capacity to decline by about 17% due to the disruption.
• Oman to Far East TCEWS200, expected to ease back to about WS180This is because there is still idle tanker capacity outside the Persian Gulf.
• U.S. Gulf to China VLCC TCErose from US$18mn to US$29mnSupported by U.S. SPR releases and higher U.S. Gulf exports.
• Potential output increase in Brazil0.5 mb/dOffshore drilling platforms could increase output, but a shortage of shuttle tankers limits effective production.
• Potential incremental U.S. exports1.5 mb/dFrom releases of the Strategic Petroleum Reserve.
• Potential output increase in West Africa0.5–0.7 mb/dInvolving Nigeria, Angola, Cameroon, and the Republic of the Congo.
• West Africa TCErecovered from a low of WS140 to WS268Improved Atlantic and West African exports lifted regional freight rates.
• VLCC cargo load factorbelow 47%However, the expert said utilization measured by employment days is broadly stable versus pre-war, reflecting redeployment inefficiency.
• U.S. Gulf round-trip voyageup to about 120 daysSignificantly longer than the traditional roughly 50-day Middle East route.
• Approximate number of VLCCs controlled by Sinokorabout 140 vesselsBy consolidating second-hand vessels, it has increased its influence on benchmark market freight rates.
• VLCC newbuild deliveries60 vessels in each of 2026 and 2027The expert believes this will not create oversupply because replacement demand for older vessels remains large.

Impact & implications

In terms of investment implications, the report is constructive for the tanker shipping chain, especially VLCC assets that benefit from longer voyages, lower redeployment efficiency, and rising Atlantic exports. If the Strait of Hormuz reopens, Middle East routes could show stronger freight rate elasticity; if it remains closed, Atlantic, Latin American, and West African routes would still provide support. For energy-importing regions, Japan, South Korea, and Taiwan have relatively high exposure to refined product shortages; for LNG and LPG markets, the disruption to Qatar LNG capacity and the scenario in which LPG can only meet India’s demand merit attention.

Risks

• Changes in the geopolitical situation around the Strait of Hormuz could quickly alter Middle East exports and tanker routes.
• U.S., U.K., and EU sanctions and insurance restrictions may continue to suppress shipping related to Russia and Iran.
• If newbuild deliveries are faster than expected or older vessels exit more slowly than expected, medium-term VLCC supply and demand could be weaker than the expert’s view.
• If U.S. SPR releases, Brazil, and West Africa production increases fall short of expectations, support for TCE from Atlantic routes will weaken.
• If Sinokor and other shipowners’ consolidation strategies fail or competitor behavior changes, support for benchmark freight rates could decline.
• Industry data from Clarksons and similar sources involve estimation and methodology differences, and shipping forecasts are inherently cyclical and uncertain.

What to watch

• Whether the Strait of Hormuz reopens and whether Middle East VLCC TCE after reopening reaches WS500–800 or even WS1,000.
• April cargo volume changes on the Yanbu-to-China route, and changes in the share held by Chinese SOEs and smaller Asian buyers.
• The pace of U.S. SPR releases, incremental U.S. Gulf exports, and whether U.S. Gulf-to-China VLCC TCE stays around US$29mn or continues to rise.
• Whether Brazil’s offshore production and shuttle tanker bottlenecks ease.
• Whether the combined incremental output of 0.5–0.7 mb/d from Nigeria, Angola, Cameroon, and the Republic of the Congo in West Africa can be realized.
• Sinokor’s further consolidation capability in the VLCC and Suezmax markets and the follow-up to rumors about MSC’s stake.
• Progress on Hengli Heavy Industry’s phase-III shipyard and additional VLCC supply after 2028.