As crude oil and refined product exports from the Middle East are blocked, global energy trade flows are being forced to restructure, with ultra-long-haul routes from the Atlantic Basin to Asia increasing rapidly, driving a comprehensive surge in freight rates for product tankers and VLCCs. The latest performance reports from multiple international tanker owners show that this market cycle has not only pushed shipowner profits to multi-year highs but is also continuing to fuel a global tanker asset investment and fleet expansion boom.
On May 7, International Seaways and Ardmore Shipping revealed in earnings calls that the current product tanker market has entered an extremely strong phase. International Seaways’ overall fleet spot daily charter rate averaged over $100,000 per day in the first quarter; Ardmore Shipping’s MR product tankers achieved average earnings of $52,100 per day. In comparison, Ardmore’s MR fleet cash operating breakeven point is only about $10,800 per day, meaning current market earnings are nearly five times its operating costs.
The core reason for the market’s rise is the significant distortion in the global shipping capacity system following the closure of the Strait of Hormuz. Ardmore President Bart Kelleher stated that approximately 130 product tankers are currently stranded in the Persian Gulf, forcing a large number of trade flows originally dependent on Middle Eastern supply to be rerouted. Refineries in the United States, Europe, and West Africa are providing alternative diesel, gasoline, and jet fuel to the Asian market, and these newly formed trade routes are nearly twice the length of traditional Middle East-Asia routes.
Longer voyage distances mean lower vessel turnaround efficiency, rapidly tightening global tanker “effective capacity.” Kelleher pointed out that the closure of the Strait of Hormuz has disrupted approximately 15% of global product trade flows and about 30% of crude oil transport flows. Against a backdrop of low inventories, this supply chain disruption quickly translates into upward momentum for freight rates.
At the same time, the global refining profit structure is also changing. Ardmore stated that refining margins in the Atlantic region have risen to their highest levels since the pandemic. As some Asian refineries reduce operating rates, more alternative refined products are being shipped from the Atlantic market to Asia via long-haul routes, further boosting U.S. export demand and global ton-mile demand.
The strong market conditions are also re-stimulating shipowner expansion. Although the current global product tanker orderbook has reached approximately 16% of the existing fleet size, shipowners are still actively adding investments.
Ardmore has ordered two handy tankers at Wuhu Shipyard, with a unit price of $44.9 million, and retains options for additional orders. Furthermore, the market valuation of three vessels previously acquired by the company has already risen by about 30%-35% compared to their purchase price.
International Seaways plans to take delivery of four newbuild LR1 vessels in 2026 and has additionally chartered in a Suezmax tanker at $40,000 per day for a three-year period. Meanwhile, the company sold seven vessels in the first quarter, generating net proceeds of approximately $223 million, indicating that second-hand vessel asset prices are also in a rapid upward phase.
Against the backdrop of high market levels, shipowners are also becoming cautious regarding long-term charters. Although demand from oil companies, refineries, and large trading houses for locking in shipping capacity long-term has increased significantly, Ardmore stated that current long-term charter rates for product tankers are still significantly lower than the spot market, so the company has not yet signed any new long-term charter agreements.
International Seaways also tends to maintain spot market exposure. Company management believes that current two-year and three-year time charter rates are still significantly lower than one-year time charter and spot market levels, making shipowners more willing to wait for further market increases.
Compared to the product tanker market, sentiment in the VLCC market is even more aggressive. Market sources revealed that even with freight rates at multi-year highs, an increasing number of VLCC owners are refusing to fix cargoes, choosing instead to wait for a potential new round of increases after the Strait of Hormuz reopens.
Currently, the latest concluded freight rate for the US Gulf to China VLCC route is approximately $17.25 million, but the market expects the next concluded rate could reach $18 million or even higher. Some shipowners even believe there is a possibility for rates on the US Gulf to China route to break through $20 million in the short term.
At the same time, major charterers including SK Energy and Chevron are prioritizing locking in their own controlled tonnage and withdrawing vessels from the open market, further tightening vessel availability.
From the current market structure, this market cycle is no longer just a short-term geopolitical shock, but more resembles a readjustment of the global energy trade system. Longer trade routes, frozen effective capacity, continuously declining inventories, and changes in the Asian refining system are jointly driving the global tanker market into a new high-cycle period.
More notably, even if the situation in the Strait of Hormuz eases in the future, the global market may still face massive restocking demand. Multiple shipowners believe this means high-intensity transport demand is likely to persist for an extended period, and the high-profit cycle in the current tanker market may be more durable than previously anticipated by the market.
