SunSirs: Positive Outlook for the Oil Shipping Market

Oil tanker freight rates have surged due to a combination of factors, including shifting trade patterns, geopolitical disruptions, and extended voyage distances that drive continued growth in tonne-mile demand. By the end of 2025, freight rates were more than 60% above their ten-year averages, with daily earnings for Very Large Crude Carriers (VLCCs) exceeding $100,000—underscoring the industry's optimistic outlook. Meanwhile, the aging global tanker fleet and rising market demand for highly energy-efficient vessels are expected to trigger a shipbuilding boom in the coming years.

Catrine Vestereng, Senior Vice President and Segment Director for Tankers at DNV, stated: "Sanctions have reshaped trade patterns and extended shipping distances; combined with tightening vessel supply and rising tonne-mile demand, this has pushed tanker freight rates well above historical averages. With global oil demand demonstrating resilience and a complex interplay of market factors creating both opportunities and challenges, the tanker market is poised to enter a pivotal year of development."

Shifting Geopolitical Landscape

The market's positive momentum is rooted in profound adjustments to global oil flows. Geopolitical uncertainty remains a defining characteristic of the tanker market heading into 2026. Sanctions targeting Russian crude oil and refined products have altered established trade routes; cargoes no longer follow traditional short-haul paths, and as voyage distances lengthen, both oil supplies and available vessel capacity have tightened.

Vestereng noted that the tanker industry is operating within a highly complex geopolitical environment. A particularly notable shift in trade patterns is that China and India have increased oil imports from the Middle East and the Atlantic Basin while reducing purchases from Russia; this has significantly increased maritime shipping distances, driving tonne-mile demand to record highs.

By the end of 2025, vessel capacity utilization exceeded 90%, and freight rates remained well above historical norms—with VLCC and Suezmax rates performing particularly strongly, exceeding their ten-year averages by more than 60%.

Resilient Oil Demand Supports the Shipping Market

Global demand for crude oil and refined products has remained stable; this, combined with low oil prices resulting from production surpluses, has further fueled the upward trend in the tanker market. China is a key driver in this context: since 2020, the country has added over 1 million barrels per day (bpd) of refining capacity and is set to add another 1.3–1.5 million bpd by 2030.

Nicolai Hansteen, a tanker market expert and Business Development Manager at DNV, stated: "China relies heavily on seaborne imports for its oil needs, underscoring the critical role tankers play in global energy logistics. Meanwhile, India’s expanding oil imports are further boosting tonne-mile demand, keeping global fleet utilization rates high. These market dynamics suggest that, despite long-term decarbonization trends, the short-term outlook for the oil tanker market remains positive."

Market Upswing Spurs Surge in Newbuilding Orders

2024 saw a peak in tanker newbuilding orders, reaching approximately 33 million gross tonnage (GT)—a ten-year high. While the pace of ordering slowed slightly in 2025, with a total of around 20 million GT, robust tonne-mile demand and high freight rates could trigger a new cycle of large-scale shipbuilding.

Hansteen noted: "A market capacity gap is likely to be the primary driver of this new shipbuilding cycle. Currently, the tanker orderbook represents only about 17% of the global fleet—insufficient to fully offset the capacity loss from the retirement of aging vessels. Supply-demand imbalances are particularly pronounced for VLCCs and Suezmax tankers."

Although newbuilding prices remain high (despite a recent slight dip), increased capacity at Asian shipyards—particularly in China—is expected to support a steady flow of orders through 2026 and beyond. In the long term, high freight rates will continue to incentivize investment by shipowners, even if newbuilding prices remain elevated.

Energy Efficiency Upgrades: A Key Focus for Newbuilds

Decarbonization remains a central challenge for the shipping industry, yet tanker owners are adopting a pragmatic approach to new vessel construction. Given the high upfront costs and uncertain returns associated with alternative fuel propulsion systems, owners are prioritizing mature, viable energy-efficiency solutions that deliver immediate benefits, rather than rushing into alternative fuel technologies. Vestereng stated: "At this stage, shipowners prioritize technologies that reduce fuel consumption and carbon emissions without compromising operational flexibility. Advanced propeller designs, silicone-based hull coatings, waste heat recovery systems, and shaft generators are widely adopted; variable frequency drives are increasingly becoming standard equipment; and small product tankers are beginning to feature shore power connections to reduce emissions while in port. Meanwhile, large tankers are commonly equipped with scrubbers to lower fuel costs."

Other energy-efficiency measures include optimizing auxiliary machinery and installing peak-shaving systems to manage electrical loads efficiently. Disruptive technologies, such as wind-assisted propulsion, have not yet seen widespread adoption due to long payback periods and operational complexities. In the long term, shipowners view biofuels as a practical transitional solution to meet increasingly stringent emission regulations; they can utilize existing engine designs, eliminating the need to purchase alternative-fuel engines during shipbuilding or undertake costly retrofits on existing vessels.

Tight Capacity Leads to Relaxed Age Limits for Vessel Operations

As tanker market capacity tightens, the viability of older vessels has drawn industry attention. While the traditional chartering market generally sets an upper age limit of 20 years, this has been relaxed to 25 years on certain routes due to capacity constraints. Vestereng noted: "Major oil companies apply the strictest vetting standards and chartering inspection requirements, whereas traders tend to be relatively more lenient."

These changes are occurring against the backdrop of a continuously aging global tanker fleet. By the end of 2025, 23% of global tankers will be over 20 years old, and 45% will be 15 years or older—up from just 36% a decade ago. Within the crude oil tanker segment, 40% of VLCCs and Suezmax tankers are over 15 years old, while the figure exceeds 45% for Aframax tankers.

Aging Vessels Face Rising Costs and Emission Pressures

Vestereng pointed out that an aging fleet creates tangible operational challenges. Older vessels consume more fuel and emit higher levels of greenhouse gases; maintenance costs continue to rise, and they are increasingly falling out of favor with charterers and environmentally conscious cargo owners.

For shipowners, the decision to scrap a vessel hinges on economic viability. Currently, high freight rates and low scrap steel prices have slowed the pace of phasing out aging vessels. However, once market earnings retreat, a wave of large-scale ship scrapping is inevitable as owners seek to meet energy efficiency and decarbonization targets. In the interim, older vessels may be temporarily laid up or absorbed into "shadow fleets," yet their room for survival within the compliant international shipping market is rapidly shrinking.

"Shadow Fleets" Pose Safety Risks

Beyond the mainstream market, the continuously expanding "shadow fleet" is a major concern for regulators and industry stakeholders. These vessels—mostly serving trades linked to Russia, Iran, and Venezuela—operate outside conventional regulatory frameworks, lacking formal insurance and routine monitoring, which creates significant safety and environmental risks. Many of these ships are well over 20 years old, further fueling industry concerns regarding their structural integrity and operational reliability.

Vestereng noted: "These vessels bypass standard classification society surveys, statutory inspections, and charterer vetting processes, with minimal investment in maintenance. In the event of an accident, there is no insurance coverage. The plight of the crew is particularly concerning, as they may be unaware of the various safety risks they face."

High freight rates have incentivized the continued deployment of aging vessels into "shadow fleet" operations. The existence of such fleets underscores the industry's urgent need to strengthen regulatory enforcement and enhance market transparency. While mainstream charterers increasingly tighten age restrictions and prioritize highly efficient vessels, the "shadow fleet" stands in stark contrast, reflecting a fragmented global oil shipping market divided between compliant and non-compliant operations.

Balancing Opportunities and Risks Amidst a Complex Landscape

As the industry moves into 2026, tanker market participants face opportunities accompanied by various risks and uncertainties. High freight rates, resilient oil demand, and shifting trade patterns support an optimistic market outlook. Structural changes driven by fleet renewal, decarbonization pressures, and evolving charterer requirements will shape long-term industry strategies. Meanwhile, recent developments in Venezuela highlight geopolitical uncertainty and the unpredictability of global energy flows, requiring market participants to remain agile and adaptable.

Vestereng believes that while market fundamentals remain positive, the industry cannot afford to be complacent. Shipowners and operators must strike a balance: seizing immediate market opportunities while proactively addressing the various challenges posed by future regulations and the geopolitical landscape. (Source: COSCO SHIPPING)

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