Middle Eastern crude returns before Chinese restocking, while inefficient shipping tightens effective capacity; JPMorgan maintains Overweight on COSCO Shipping Energy Transportation's A and H shares

Overview

The report discusses how the sequencing among Middle Eastern crude exports, tanker shipping efficiency, and Chinese restocking demand has shifted, and assesses the implications for VLCC freight rates and COSCO Shipping Energy Transportation. JPMorgan believes that producers are proactively restoring cargo supply before buyers meaningfully return, while shipping efficiency remains impaired by shuttle transportation, STS, waiting, and rerouting. It has therefore turned slightly more constructive on the tanker market and maintains OW on COSCO Shipping Energy Transportation's A and H shares, but does not view the current improvement as a stable new normal.

Core views

The report's core judgment is that the original chicken-and-egg sequence in the Middle Eastern crude oil market—whether cargo or demand comes first—is reversing. JPMorgan previously believed that the recovery in Middle Eastern exports was temporarily outpacing Chinese demand and that, as inventories tightened, Chinese buyers would eventually be forced back into the market. Instead, Gulf producers have proactively restored exports first through discounts, shuttle tankers, and ship-to-ship transfers. Iraq has offered larger-than-usual discounts, ADNOC has sold more than 100 million barrels of crude oil through tenders and used shuttle and STS arrangements outside the Gulf, and Saudi Arabia has also begun selling Arab Medium and Arab Heavy through STS transfers off Oman. On Friday night, August 21, approximately 40 tankers entered or exited via the US-supported southern deepwater channel, well above the approximately 15 to 20 vessels per night seen in recent weeks. Although attacks and irregular transit windows continue to cause fluctuations in traffic, the key change is that cargoes are returning before shipping efficiency recovers and before China begins meaningful restocking. The recovery in cargo volumes does not mean transportation is normalizing; instead, it may be occurring in a more vessel-intensive manner. Shuttle transportation and STS consume additional vessel-days both inside and outside the Strait of Hormuz. Saudi crude diverted through Yanbu is also forced onto the longer route around the Cape of Good Hope because of the Houthi threat to the Bab el-Mandeb Strait. More than 25 identified Sinokor tankers have participated in Hormuz voyages, versus a single-digit number at the beginning of the conflict, representing approximately 40% of observed voyages and implying that the actual participating fleet may be larger. Attacks, waiting, irregular transit windows, and transfer operations also continue to consume vessel time. Consequently, the Middle East can restore more crude oil exports while effective tanker supply remains tight, which is the mechanism most favorable to the tanker market under current conditions. High returns on Hormuz routes may attract additional capacity, but their impact needs to be understood separately. TD2 and TD3C rates are approaching approximately US$600k/day, near historical highs, although current transaction volumes remain low and COSCO Shipping Energy Transportation and China Merchants Energy Shipping continue to avoid Hormuz. These routes are therefore not representative benchmarks for COSCO Shipping Energy Transportation's earnings. Crew safety and availability constrain many shipowners, but expanding shuttle transportation may not require the full return of risk-averse fleets: the shipping divisions of Gulf producers such as Bahri, Kuwait Petroleum, and ADNOC, together with more risk-tolerant operators such as Dynacom and Sinokor, collectively control more than 270 VLCCs, while producer-affiliated shipping divisions are also increasing chartering and vessel acquisitions. Even if only a small portion of these vessels increases participation, shuttle capacity could expand significantly. For COSCO Shipping Energy Transportation, the benefit is primarily indirect—more VLCCs absorbed by Hormuz transportation means less available capacity in other trading regions. Freight rates on conventional routes have already strengthened significantly ahead of the observed increase in Middle Eastern export volumes. West Africa–China VLCC TCE rose from a late-July low of approximately US$95k/day to approximately US$170k/day on August 20, while US Gulf–China recovered to approximately US$146k/day. JPMorgan does not believe that the rise in Atlantic rates is entirely attributable to Hormuz, but raises one possibility that warrants monitoring: newly added VLCCs may need to reposition before entering Gulf shuttle service, meaning tanker supply could tighten before the corresponding crude flows actually recover. This may explain why conventional rates have risen faster than Middle Eastern export volumes, but the report presents it only as an observation rather than the base case. COSCO Shipping Energy Transportation can also participate in the related cargo flows without entering the chokepoint: four of its VLCCs loaded through STS at Fujairah in July, and approximately 12 vessels are expected to load outside the Gulf between August and mid-September. Chinese demand remains the main reason the report has not turned fully bullish. Chinese refinery throughput increased month over month in July, but crude oil inventories continued to decline, indicating that refiners were still consuming inventories rather than actively restocking while oil prices were high. Even so, West Africa–China TCE has already risen from approximately US$95k/day to approximately US$170k/day. The current sequence is therefore more favorable: producers are restoring cargo supply, shipping efficiency remains low, and Chinese demand has yet to join in. If additional Middle Eastern supply ultimately pushes oil prices low enough to attract Chinese buyers to restock, the incremental cargo volumes would encounter an already constrained effective fleet, creating the clearest additional upside scenario. However, the report does not include Chinese restocking in its base-case assumptions. At the company level, COSCO Shipping Energy Transportation will release its 1H26 results this Friday. Preliminary profit has already been announced at approximately Rmb4.5bn, implying 2Q profit of approximately Rmb2.3bn, so the headline results are unlikely to provide much new information. JPMorgan is more focused on management's views regarding 2H26 freight rates, fleet deployment, and the duration of inefficiencies in Hormuz and the Red Sea. Given the rapid changes in the physical market, near-term assessments will continue to rely more heavily on high-frequency freight-rate, cargo-volume, and vessel-positioning data. COSCO Shipping Energy Transportation's H shares and A shares rose approximately 20% and 17%, respectively, last week, compared with a 4% rise in the Hang Seng Index and a 1% decline in the CSI 300, but tanker fundamentals continue to strengthen. JPMorgan maintains OW on both listings and believes that, as long as Middle Eastern cargo supply continues to improve, shipping inefficiencies persist, and conventional VLCC rates remain elevated, the physical market can continue to support its view. Further expansion of the Hormuz shuttle fleet without a corresponding release of capacity in other regions would reinforce this thesis, while Chinese restocking would add a second source of demand support. Conversely, if the recovery in Middle Eastern cargo volumes stalls, effective vessel supply normalizes, or conventional freight rates decline, the report would turn more cautious. Because security conditions, cargo supply, and shipowner behavior have repeatedly changed the tanker market equation, the current environment should be understood as an ongoing improvement rather than a stable state from which a single spot rate can be extrapolated.

Analysis framework

The report first compares its previous expectations with the actual sequence of the recovery in cargo flows, then conducts a step-by-step analysis along the chain of “producers restoring exports—increased vessel-days due to transportation methods—tightening effective capacity—changes in conventional VLCC freight rates—the path through which COSCO Shipping Energy Transportation benefits.” The research also distinguishes high-risk Hormuz route rates from the conventional-route returns achievable by COSCO Shipping Energy Transportation, and tests changes in supply and demand using cargo volumes, freight rates, the number of participating vessels, repositioning, and STS arrangements. Regarding the possibility that capacity may tighten before crude oil flows recover, the report explicitly classifies this as an observation rather than a base-case conclusion and uses high-frequency freight-rate, cargo-volume, and vessel-positioning data as the basis for near-term validation.

Methodology notes

• Industry/Sector Analysis FrameworkSupply-demand framework

  Analysis of freight demand and effective tanker supply

  The report examines not only the total number of vessels but also incorporates the vessel-days consumed by shuttle transportation, STS, waiting, rerouting, and repositioning into effective supply. When cargo volumes recover while effective capacity remains constrained, freight rates can receive support.

• Industry/Sector Analysis FrameworkUpstream-Midstream-Downstream Industry Chain Transmission

  Transmission from crude oil supply and transportation efficiency to freight rates and shipping company earnings

  Starting with the export arrangements of Gulf producers, the report analyzes how they change routes and capacity utilization, and then assesses the indirect impact on conventional VLCC rates and COSCO Shipping Energy Transportation's earnings environment.

• Event Strategy and Behavioral FinanceEvent-driven analysis

  Tracking security events, transit conditions, and shipowner behavior

  Security conditions in Hormuz and the Red Sea, transit windows, crew safety, and differences in shipowners' risk tolerance can alter cargo flows and fleet participation. The report therefore uses these event variables to assess whether current market conditions can persist.

Asset mapping & comparison

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

• COSCO Shipping Energy Transportation A shares (600026.SH)

  The absorption of more VLCCs by Gulf shuttle transportation could reduce capacity in other trading regions and indirectly support freight rates on conventional routes served by COSCO Shipping Energy Transportation.

  Strengths

  Able to participate in STS and loading outside the Gulf without entering the chokepoint; the physical tanker market continues to strengthen.

  Weaknesses

  The company continues to avoid Hormuz, so TD2/TD3C rates approaching US$600k/day are not directly representative of its earnings.

  Comparison

  Rose approximately 17% last week, while the CSI 300 declined approximately 1% over the same period.

  Risks

  A stalled recovery in Middle Eastern cargo volumes, normalization of effective vessel supply, or a decline in conventional VLCC freight rates would weaken the investment thesis.

• COSCO Shipping Energy Transportation H shares (01138.HK)

  The absorption of more VLCCs by Gulf shuttle transportation could reduce capacity in other trading regions and indirectly support freight rates on conventional routes served by COSCO Shipping Energy Transportation.

  Strengths

  Able to participate in STS and loading outside the Gulf without entering the chokepoint; the physical tanker market continues to strengthen.

  Weaknesses

  The company continues to avoid Hormuz, so TD2/TD3C rates approaching US$600k/day are not directly representative of its earnings.

  Comparison

  Rose approximately 20% last week, while the Hang Seng Index increased approximately 4% over the same period.

  Risks

  A stalled recovery in Middle Eastern cargo volumes, normalization of effective vessel supply, or a decline in conventional VLCC freight rates would weaken the investment thesis.

Key data

• West Africa–China VLCC TCEApproximately US$170k/dayAs of August 20, 2026, significantly higher than the late-July low of approximately US$95k/day.
• US Gulf–China VLCC TCEApproximately US$146k/dayFreight rates on conventional Atlantic routes have also recovered.
• Hormuz-related VLCC freight ratesApproaching approximately US$600k/dayTD2/TD3C rates are near historical highs but are not representative benchmarks for COSCO Shipping Energy Transportation's current earnings.
• ADNOC tendered crude oil sales volumeMore than 100mn barrelsSupported by shuttle transportation and STS arrangements outside the Gulf.
• Single-night traffic through the southern deepwater channelApproximately 40 tankersThe number entering and exiting on the night of August 21, 2026, compared with approximately 15 to 20 vessels per night in recent weeks.
• Identified Sinokor tankers participating in Hormuz voyagesMore than 25 vesselsUp from a single-digit number at the beginning of the conflict and currently representing approximately 40% of observed voyages.
• Controlled potential shuttle capacityMore than 270 VLCCsCollectively controlled by the shipping divisions of Gulf producers and more risk-tolerant operators.
• COSCO Shipping Energy Transportation's related loading arrangements outside the Gulf4 vessels in July; approximately 12 vessels from August to mid-SeptemberFour VLCCs have loaded through STS at Fujairah, and approximately 12 vessels are expected to load outside the Gulf.
• COSCO Shipping Energy Transportation's preliminary 1H26 profitApproximately Rmb4.5bnAlready announced in advance, with limited incremental information expected from the formal results.
• COSCO Shipping Energy Transportation's implied 2Q26 profitApproximately Rmb2.3bnDerived from the preliminary 1H26 profit.
• COSCO Shipping Energy Transportation's share-price performance last weekH shares approximately +20%; A shares approximately +17%Over the same period, the Hang Seng Index was approximately +4% and the CSI 300 approximately -1%.
• COSCO Shipping Energy Transportation reference share pricesA shares Rmb19.14; H shares HK$16.65As of the close on August 24, 2026.

Impact & implications

The report believes that the current improvement in the tanker market is not driven solely by higher cargo volumes. Instead, the recovery in cargo volumes is occurring alongside transportation inefficiencies, causing more vessels to be occupied by shuttle transportation, STS, waiting, and rerouting. Although COSCO Shipping Energy Transportation continues to avoid the high-risk Hormuz area, it can participate in cargo flows through loading outside the Gulf and benefit from reduced VLCC availability in other trading regions and rising conventional freight rates. If China subsequently begins restocking, demand could further reinforce this environment; if effective capacity recovers or cargo volumes and freight rates weaken, the current positive transmission would diminish.

Risks

• If the recovery in Middle Eastern crude oil cargo volumes stalls, the current thesis of improving tanker demand will weaken.
• If effective vessel supply normalizes or conventional VLCC freight rates decline, the report would turn more cautious.
• Attacks, irregular transit windows, crew-safety constraints, and changes in shipowner behavior could once again alter cargo flows and capacity conditions.

What to watch

• Monitor whether Middle Eastern cargo supply continues to recover and whether other trading regions release corresponding capacity as the Hormuz shuttle fleet expands.
• Observe whether conventional VLCC rates on routes such as West Africa–China and US Gulf–China can remain elevated.
• Watch whether China shifts from drawing down inventories to meaningful restocking, thereby creating additional freight demand.
• Focus on COSCO Shipping Energy Transportation management's guidance on 2H26 freight rates, fleet deployment, and the duration of inefficiencies in Hormuz and the Red Sea.
• Continue tracking high-frequency cargo-volume, freight-rate, and vessel-positioning data to verify whether capacity is indeed tightening before crude oil flows recover.