We Dunno

Dirty tanker freight has hit record-breaking strength. Q4 is usually the seasonal peak for tankers, driven by Northern Hemisphere winter demand for heating fuels and by rough weather that slows voyages. Add all the inefficiencies driven by the closure of the Strait of Hormuz, the Red Sea, and the Black Sea, and tankers have become strategic assets. We certainly didn’t predict the current situation, but nobody else did, either. There are those in the tanker community who believe that once the Strait of Hormuz and the Red Sea are safe again, rates will plummet. However, the smartest charterers of tankers, the trading houses, such as Trafigura, have been adding vessels through purchase and long-term contracts. Ownership of very large crude carriers (VLCCs) has also consolidated since December 2025. Sinokor, a shipowner, now controls roughly 24% of the VLCC spot fleet. Perhaps the world will learn to live without a fully functioning Strait of Hormuz for an extended period, just as the Suez Canal remained closed from 1967 to 1975. We just don’t know.
The clean tanker market continues to be healthy. As the brilliant shipping commentator Ed Findley-Richardson recently noted, the LR2 fleet, which carries clean products, can easily move into crude to take advantage of stellar Aframax rates, a switch that tightens the supply of clean tonnage. Over the past week, there has been talk of a temporary US diesel export ban. A ban would be self-defeating given that parts of the US depend on distillate imports that would be difficult to substitute economically with US products, and we would expect retaliation by other exporters. California, through active policy, has reduced its refinery capacity to the point where it imports roughly 15% to 20% of its jet fuel, another distillate, from South Korea, China, India, and Japan in addition to direct Middle Eastern imports. It is isolated from US refining hubs. New England imports ultra-low sulfur diesel and home heating oil from Amsterdam, Rotterdam, and Antwerp, while the UK buys diesel from the US Gulf Coast. As we write, the likelihood of a ban appears to be diminishing.
We haven’t sold any of our tanker holdings since a modest rebalancing in early January 2026. Recently we collared (bought out-of-the-money puts and wrote out-of-the-money calls) 20% of our clean and dirty tanker exposure. In addition, given political uncertainty, we purchased out-of-the-money puts on an additional 30% of our clean tanker exposure. As the old saying goes, “There are old investors. There are bold investors. There are no old, bold investors.”