Caitong Securities: The crude oil cycle relies on supply to clear the current Q4 peak season

The Zhitong Finance App learned that CaiTong Securities released a research report saying that current demand is gradually strengthening against the backdrop of OPEC+ production expansion and stricter European and US sanctions, and the freight side has given a strong response. However, the supply side is currently under-clearing, but a high proportion of old ships indicates that there is great potential for clearance. If demand in the gray market shrinks in the future, the supply side is expected to usher in a wave of dismantling, thus providing long-term support for freight rates.

The main views of Caitong Securities are as follows:

An important raw material for energy and chemicals, uneven distribution of production and marketing catalyzes the East-West Transportation pattern for West Oil

As an important energy and chemical raw material, there are clear geographical differences in storage distribution. The total production in the Middle East & North America is nearly 60%, while demand is mainly concentrated in East Asia, Europe, America, etc., and uneven distribution of production and marketing catalyzes the formation of a peer-to-peer trade pattern for West-East Oil. The current supply pattern in the industry is fragmented (CR10 accounts for 27.9%), and VLCC is the main ship type with the highest profit flexibility, contributing to the main source of revenue.

Oil transportation cycle review

Freight rates are related to strong stock prices, and supply clearance is a prerequisite for a larger cycle. Since the end of World War II, there have been two cycles with good overall sustainability and a long boom span, 1983-1991 and 1999-2004, respectively. There were significant and continuous supply-side clean-ups before the two major cycles (naturally clear or pessimistic expectations, driven by regulations). The tight supply and demand relationship provided more stable support for the subsequent release of tariff flexibility, thus making the cycle boom sustainable.

Increased OPEC+ production boosts demand and catalyzes freight rate boom during the Q4 peak season

In April of this year, OPEC+ began a gradual increase in production to accelerate the central decline in oil prices. Against the backdrop of relatively low oil prices, the recovery in the operating rate of downstream refineries was compounded by an increase in offshore floating warehouses, and the warming relationship between supply and demand led to a rapid rise in freight rates. As of December 3, 2025, the TCE for the TD3C route (Middle East-China) reached 121,000 US dollars/day, an increase of 412.9% over the beginning of the month. It is currently the peak season of Q4. Supported by low oil prices, stricter sanctions, and increased compliance requirements, global crude oil reserves may once again drive higher freight rates.

Risk warning: Demand for crude oil has dropped sharply, OPEC+ production increases fall short of expectations or shifts to production cuts, sanctions fall short of expectations, risk of war, etc.