The tanker boom is built on traffic jams, and the shipyards are building for the sequel

Crude tanker earnings this week look like a misprint. The Baltic Exchange's benchmark route for very large crude carriers (VLCCs), from the Middle East Gulf to China, rose 115 points to WS1,318.75, which works out at a round-trip time-charter equivalent of about $1.41m a day [1]. Breakwave's Middle East-to-Asia VLCC spot rate index was up about 1,320% on a year earlier as of its 6 October report [2]. Smaller ships are also doing well: a Suezmax from Nigeria to northern Europe earns about $562,000 a day, and an Aframax crossing the North Sea about $527,000 [1]. Clean-product tankers have joined in. Argus reports record rates on Gulf-to-Japan routes for long-range (LR) 2, LR1 and medium-range (MR) vessels on 14 and 15 October, the highest since its assessments began in 2005 for the two larger classes and in 2017 for the MR [4].

The obvious reading is that the oil trade is booming. It is not. The International Energy Agency (IEA) said on 14 October that world oil demand will fall by 2.6m barrels a day in 2026, with higher prices doing the damage, and that supply will drop by 5.8m barrels a day this year before rebounding by 7.7m in 2027 [5]. Brent crude settled at $105.92 a barrel on Thursday [9]. Shrinking demand does not usually produce record tanker earnings.

Our argument is that this is a shortage of efficiency, not of oil. Each barrel now needs more ship, and the fleet is already starting to outgrow that condition.

What the ships are doing

Start with the strait of Hormuz. Kpler, a data provider, counts confirmed transits of oil through the strait at a seven-day average of 7.6m barrels a day to 12 October, about 56% below its pre-war baseline of 17.1m; Kpler cautions that the latest days are preliminary and have usually settled at 1.5 to 2 times higher once confirmations arrive [3]. Tanker crossings average 13 a day, against 50 before the war [3]. At least 18 vessels have reportedly been attacked in the past two weeks, Kpler says, without attributing the attacks [3].

Oil has found other routes, and that is where the extra ship demand comes from. Loadings at Fujairah and other Omani terminals ran about 21% above their pre-war average, and Red Sea volumes about 24% above theirs, according to Kpler [3]. Saudi Arabia is exporting from both coasts again, with the East-West pipeline carrying about 5.8m barrels a day, according to industry sources cited by Kpler [3]. Cargoes that once sailed straight out of the Gulf are now shuttled, transferred ship to ship in the Gulf of Oman, or carried on longer journeys. Breakwave Advisors, a freight-futures fund manager, notes that "shuttle voyages, transfers and waiting time continue to absorb capacity" and that the risk of attack affects owners' willingness to accept Gulf employment [2].

The fleet data show the cost. Around 42% of VLCCs are carrying cargo, Kpler says, against a historical average of roughly 45%; about 20 more VLCCs are sailing empty than the 2025 average implies [3]. Kpler offers an illustrative estimate that tanker scarcity accounts for roughly half of the current freight premium [3]. Owners are being paid for the friction.

The clean-tanker market tells the same story from another angle. Some 113 LR2 tankers switched from clean to dirty cargoes in January to August, against 67 in the whole of 2025, according to a Singapore-based broker quoted by Argus; Kpler, quoted by Argus, puts crude Aframax earnings at around $200,000 to $300,000 a day above LR2 earnings, which limits the incentive to switch back [4].

Why it cannot last at this level

The IEA calls the supply recovery "fragile" because of renewed attacks in the Gulf [5]. Kpler's own analysts assume a reopening of the strait does not depend on a comprehensive political settlement, and expect a slower and more uneven recovery in tanker traffic through 2027 [3]. That suggests gradual normalisation, not a cliff, but the direction is toward fewer detours and shorter voyages.

Meanwhile, the supply side has been transformed. Owners have responded to record earnings with record ordering. Maritime Strategies International counts 177 VLCCs, 54.5m deadweight tonnes (dwt), ordered in the first half of 2026, more than the previous full-year record of 32.6m dwt in 2006; it puts the VLCC orderbook at around 35% of the fleet in June, up from 2% in 2023 [8]. Veson Nautical, an analytics firm, put the figure at 38% in September, against 15% a year earlier [7]. The shipbroker Xclusiv has it at 32.5% for VLCCs and 29.6% for Suezmaxes in its report of 12 October [6]. The measures differ; the scale does not.

Deliveries are starting. Xclusiv counts 32.6m dwt of tankers delivered so far in 2026, against 19.5m in all of 2025 and 7.6m in 2024; VLCC deliveries have gone from one in 2024 to six in 2025 and 31 so far this year [6]. Scheduled deliveries are about 50.7m dwt in 2027 (almost 6.9% of the current fleet) and 61.2m dwt in 2028 [6]. Veson says the big yards in Japan, South Korea and China are close to maximum capacity, with delivery slots full until 2030, so it does not expect the orderbook to keep growing [7].

Demand for the cargo, by contrast, is not growing. Xclusiv cites a projection of seaborne oil trade of about 62.8m barrels a day in 2027, slightly below the 63.4m recorded in 2025 [6]. Breakwave, which runs freight-futures funds, takes the same view: it expects "a meaningful negative balance to develop longer term leading to an industry downcycle" [2].

The counter-argument, and why it is only partial

The strongest objection is age. Xclusiv notes that 19.8% of the tanker fleet by vessel count is more than 20 years old and almost half is above 15 years, so many new ships will replace old ones rather than add capacity [6]. That is fair. Scrapping will absorb a part of the orderbook, and freight futures still point to tight conditions into the new year [2]. We do not expect rates to collapse next month.

But the newbuilding wave is arriving into a market whose demand base has shrunk, not grown. Even Xclusiv, which stresses the ageing fleet, concludes that "simple volume growth may not be sufficient to absorb the incoming fleet" and that the outcome depends on how far trade distances stay long [6].

Ship prices show how far sentiment has run. Veson says five-year-old VLCCs are 133% above their 1992-2026 median value, and newbuilding resales have reached $200m [7]. Buyers are paying for earnings that depend on a disruption.

Our thesis

For the next few months, tanker owners' fortunes depend on geopolitics and the pace of Gulf traffic, not on oil demand. Over the next two to three years, the ships now on order will arrive as the inefficiencies that justified them are worked out of the system. Record rates today are better read as evidence of a market under strain than as a measure of lasting strength.

What would change our mind

We would revise this view if (1) the strait stays largely closed or traffic remains severely restricted into 2027, which would keep voyages long and ships tied up for longer than we expect; (2) scrapping accelerates sharply, with older tankers leaving the fleet faster than the delivery schedule adds new ones; (3) oil demand recovers faster than the IEA's forecast of a 2.0m barrel-a-day rebound in 2027 [10]; or (4) deliveries slip substantially. Any one of these would narrow the gap we describe between ships and cargo.

This is reporting and analysis, not investment advice.