CSET Utilization Recovering, But Hormuz and Shadow Fleet Risks Are Altering the Tanker Market Tightening Path

Overview

This report is JPMorgan's 11th week monitoring on China tanker shipping and Hormuz disruption. Core conclusion is VLCC rates rebounded again in early May, CSET utilization improved, Gulf export resumption supports tanker demand; but if Iran maintains effective influence in Hormuz without comprehensive peace arrangements, Gulf-related exports may flow more to pro-Iranian shadow fleets, undermining expected tightening cycle for compliant listed fleets and tanker shipbuilding.

Core views

Report believes near-term tanker market remains tight: diversions, resilient oil demand, and constrained effective supply support TD34 Oman to China and Atlantic Basin VLCC returns maintaining high levels. CSET improvement is particularly evident, idle rate dropped to approx 5%, Middle East exposure below pre-conflict levels, redeployed to West Africa, South America and other alternative barrel routes. However, medium-term risks are shifting from simple supply tightness to structural diversion: compliant owners constrained by crew safety, war risk insurance, and secondary sanction risks, may struggle to fully take up restored Gulf cargo flows.

Analysis framework

Report adopts weekly high-frequency monitoring framework, combining VLCC rates, route returns, regional deployment ratios, Saudi-direction VLCC participation count, CSET idle rate, and major owners' regional exposures to assess impact of Hormuz disturbance on tanker demand, ton-miles, fleet utilization, and compliance/shadow fleet divergence.

Methodology notes

• shipping_market_trackingVLCC freight and deployment monitor

  Observe tanker supply-demand tightness via VLCC rates, regional deployment, and idle rate.

  Report focuses on comparing TD34 Oman to China, Atlantic Basin route returns, CSET regional exposure and Saudi-direction VLCC participation count to judge impact of Gulf export resumption, diversions, and alternative barrel demand on rates and utilization.

• geopolitical_risk_analysisHormuz disruption scenario analysis

  Split Hormuz disturbance into short-term cargo resumption, compliant fleet constraints, shadow fleet diversion, and demand destruction risks.

  Report believes restored Gulf exports favor capacity demand short-term, but if long-term affected by Iran influence lacking comprehensive peace arrangement, cargo flows may migrate to shadow operators; more severe downside scenario is high oil prices and economic weakness causing global oil demand and freight volume decline.

Asset mapping & comparison

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

• COSCO Shipping Energy Transport

  Core tracked target

  Strengths

  Idle rate down to approx 5%, West/South America exposure rising, showing redeployment capability and utilization improvement.

  Weaknesses

  Saudi participation still limited, CSET and CMES each only 1 VLCC in relevant stats; Middle East direct exposure still below March levels.

  Comparison

  Compared to owners maintaining higher Middle East exposure, CSET shifts more obviously to Atlantic Basin and alternative barrel trade.

  Risks

  Shadow fleet diversion, war risk insurance and secondary sanction risks, Hormuz long-term disturbance leading to demand destruction.

• VLCC freight market

  Macro industry variable

  Strengths

  TD34 Oman to China and Atlantic Basin returns maintain historical highs, reflecting effective supply tightness.

  Weaknesses

  Slightly slowed last week after strong rebound in early May.

  Comparison

  2026 relevant route returns higher and more volatile than most periods 2022-2025.

  Risks

  If high oil prices and economic weakness suppress global oil demand, ton-mile gains from diversion may be offset.

• compliant listed tanker fleets

  Affected asset class

  Strengths

  Expected to benefit from utilization improvement in compliant cargo flow, alternative barrel demand, and restocking scenarios.

  Weaknesses

  Facing crew safety, war risk, and secondary sanction constraints, flexibility to take up Hormuz-related cargo flows lower than shadow operators.

  Comparison

  Relative to pro-Iranian shadow fleets, compliant listed fleets more constrained by regulations and insurance.

  Risks

  If restored Gulf exports migrate to shadow fleets, supply-demand tightening logic for compliant fleets may be weakened.

Key data

• CSET Idle RateApprox 5%Lowest since outbreak of conflict, indicating active VLCC deployment utilization improvement.
• CSET West Africa Exposure11%Previously 2%-3% majority time in April, indicating acceleration to Atlantic Basin redeployment.
• CSET South America Exposure19%Continues rising, reflecting increased share of alternative barrels and Atlantic Basin trade.
• CSET Middle East ExposureApprox 26%Still below over 40% pre-conflict/early levels in late March.
• Saudi Direction VLCC Participation Count31 vesselsRose from 26 last week, still below 48 on March 22.
• Bahri Saudi Direction VLCC Participation Count15 vesselsReport states Bahri participation recovering, while CSET and CMES each only 1 vessel.
• Share of Asian Import In-transit VLCC Destination: China29.8%Chart shows China remains largest destination for Asian import in-transit crude oil flow.
• Share of Asian Import In-transit VLCC Destination: Singapore23.6%Destination ratio ranked second.
• Share of Asian Import In-transit VLCC Destination: South Korea15.1%Destination ratio ranked third.

Impact & implications

For investment and industry judgment, report supports view near-term tanker earnings remain high, CSET utilization recovering, but also warns cannot simply equate Hormuz disturbance to continuous benefit for compliant listed fleets. If cargo flows absorbed by shadow fleets, compliant owners' rate elasticity and shipbuilding tightening logic may weaken; if disturbance drags macro demand, tanker demand and freight volume may be suppressed backward by demand destruction.

Risks

• Hormuz disturbance duration too long, triggering high oil prices, economic activity weakening, and global oil demand decline.
• Restored Gulf exports flow more to pro-Iranian shadow operators rather than compliant listed fleets.
• Crew safety, war risk insurance and potential secondary sanctions restrict compliant owners' participation in relevant routes.
• Short-term freight rates may continue mild decline after strong rebound.
• If peace agreements or export resumption path changes, current alternative barrel and diversion demand may weaken.

What to watch

• Whether CSET idle rate stays at approx 5% low level or continues declining.
• Weekly changes in CSET Middle East, West Africa, South America exposures, especially whether continuing shift from Middle East to Atlantic Basin.
• Whether Saudi direction VLCC participation count can rise from 31 vessels approaching 48 on March 22.
• Whether TD34 Oman to China, TD15 West Africa to China, and TD22 US Gulf to China VLCC returns maintain historical highs.
• Whether Gulf-related exports are taken up by compliant fleets, or migrate more to shadow fleets.
• Oil prices, global economic activity and crude demand, watch for demand destruction signals.