Q3 2020 Scorpio Tankers Inc Earnings Call
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Please go ahead.
Thank you and thank everyone for joining us today welcome to the Scorpio tankers third quarter earnings conference call on the call with me today are Emmanuel our Chief Executive Officer, Robert Bugbee, Our President Cameron Mackey, our Chief operating Officer, Lars Dr. Nelson commercial director, David Moran, Managing director James Doyle Senior financial.
Analyst earlier today, we issued a third quarter earnings press release.
The extraordinary events of Twentytwenty.
So we're pleased with the balance sheets.
The progress that we've made over the year, which has allowed us to retire debt as we have outlined on the presentation that Brian was referring to and on the earning press release.
We've also almost concluded our extensive investment and capex in dry dockings and scrubber installations. So the vast majority of that is behind us now.
Which is another positive.
As far as market update is concerned our commercial director large anchor Nielsen will give us his views on the market in the next few minutes, so I'll leave that to him and.
Overall put simply I would observe that as well.
We are well positioned for the stronger seasons and normalization in the global economic activity.
The description of previously.
Previously provided unravel quite favorably.
So on the supply side.
You know we feel comfortable we believe this following.
Wind will be a significant support to rates over the coming quarters and years.
And look to the future with confidence.
Confidence.
We we of course have the question Mark put upon us solve.
Colby then 2020 in general, but however, the fundamentals.
You too heavy refinery offline periods, which would combination of routine and extended maintenance in a proactive response to reconvene refining margins.
A record breaking Atlantic Hurricane season, which decreased refinery runs in the major you a sculptor fine region.
And we've seen an accelerated and substantial drawdown, an onshore inventory levels further impacting tonnage demand negatively in the prompt.
However, these headwinds do have some positive outcomes.
S U S golf refined product inventories declined 23.3 million barrels since July and global like distillate inventories now approach five year normalised levels.
And we've seen the eastern demand picture emerge out of their Covid lockdown, demonstrating V shaped recovery curves, particularly in China and India.
And finally, the acceleration of closing older less efficient refining capacity.
It is important to highlight the impact of the refinery rationalizations currently underway.
The widely reported closures of several less efficient primaries suddenly cut headline output.
Luckily, we tried 2 million barrels a day of announce refinery closures globally include.
Including the temporary closures and the conversion to a storage of distribution terminal adopted by several macho regional refineries and you could end up with a global reduction a 3.5 million barrels a day.
These refinery events seem to be equally spread around the globe.
And the medium term. These developments will support increased 10 miles that's products needs to be supplied from further afield supercharging the tonnage demand picture.
The immediate reduction output from inefficient refineries is a vaccine worth taking for the long term benefit.
This rationalization has been widely discussed is new and sophisticated refineries are coming on line and tidbit put the older units just can't compete economically.
As a short term consequence from the pandemic. These refinery closures coupled with the lodge doctoral have had an immediate impact spot market weakness.
But you illustrate this inherent flexibility we already starting to see glimpses of demand rally and the potential to be shaped recoveries as evidenced in the Asian markets.
Chinese gasoline demand is already up 6% year on year.
And that the company itself you know this year at the end of this year is going to be a great year in terms of earnings in terms of operating cash flow and in terms of getting a lot of things done we would have completed almost all of our dry dockings are upgrades related to what.
Water ballast or scrubbers and have a fleet that they're set for a future you know full recovery around the world is lost said we're already seeing.
You know good strong signs in the east East is developing.
The ordinary Lee compelling so it really we see it has.
Yep changing the season doing this slowly developing but this could kickstart extremely rapidly at any time to the extent that the the world can look forward and replace a very dark cloud of uncertainty with perhaps hope and Sunshine you know, especially.
<unk> to the degree that a a scientifically accepted vaccine were to be accepted it somewhere in the world over the next sort of six eight months or so.
And with that we'd like to open up.
Questions.
Okay got it.
And then maybe sorry, Brian just one or two I know you said lets save some modeling questions for later and I don't want US I don't think they think this is modeling as much as just simply thinking about the cash position or liquidity.
And I just wanted to run through some some numbers with you.
You have $209 million of cash as of yesterday and Youve outlined in the presentation and the press release, the various avenues of liquidity got the 44 million lined up you've got commitments for.
64 million.
We're talking about refinancing 11 ships, so that $75 million. So altogether, we are talking pro forma $390 million of cash and liquidity that you when you add all that up so.
Maybe just first question just off the bat is am I thinking about that right is that pro forma 390 am I on the right path with that number.
Yes, you are from all those points absolutely right.
Okay.
And so then when we look then at the debt repayment $33 million during the fourth quarter. It seems pretty manageable from here and then when we look at 2021.
There's 390 of debt due but that includes roughly a 100 or so of maturities.
So really it's 290 that we can say is amortization.
So when we look at it going into 2021 pro forma 390 of cash liquidity to nine do you have that repayment that leaves you basically $100 million at the end 21, assuming basically that maybe a worst case scenario that 2021, you don't generate any cash flow from operations. There are still coming out of 21 with the hunt.
3 million of cash.
I guess from my perspective that seems pretty good given the market, especially the opportunity maybe for things to really start to kick upwards, maybe in the second half of next year.
Maybe just on that $100 million quote unquote number are you comfortable with that.
As a as a figure.
Thinking about 12 months from now.
Well, that's a comfortable enough to be operating up to $100 million, we can operate in that but.
As you're pointing out here you take away that $290 million of amortization and then out of out of the top line number.
That reduces your breakeven rates significantly by.
$6000 a day down further so below 17 at this point because interest rates have fallen so were below 17, and then you go down below another $6000 or below $11000. So you're in about five area. So so almost all of it to.
Add to that so the ones that have on the state I mean, yes, that's the correct mathematics, but you're also describing a market.
At that level that is lower than where it is right now.
During what losses described as you know.
Look down.
The worst period of a year.
The refineries closing not yet got the benefits of the seasonal change.
You're describing a market worse than today for.
The whole over next year.
All the way through till December 31st next year. So.
The company that Brian is very clearly.
Saying to you, yes, you would agree with you 100 million would be left and he can manage 100 million would be left but we're not buying into the we don't we're not giving guidance for next year, but we're not buying into the idea that the market is going to be that low for the next year.
Yes, yes.
Yes, definitely we're sitting here in the basically the really troughs worst case scenario situation.
Maybe just one one quick follow up.
The you've outlined obviously, a bunch of different avenues of cash and liquidity. One thing that you haven't really touched on are done. It is really asset sales you've done sale leasebacks how.
How do you think about maybe some of those MRC have built 2012 2013, they're still relatively young for everybody you know for the global fleet, but for you there on the older side.
Any any thoughts of maybe monetizing those just to improve liquidity or are you comfortable with the way things are.
Well I think you've done your own calculation in terms of liquidity and we've addressed a really severe market in terms of liquidity.
And you know we have given our reasons as to why.
Why we fit while we would expect.
The market.
We would not be at those levels.
Throughout the whole of the year.
But the question in terms of.
Monetizes vessels.
That way is perhaps a different question to liquidity that can be a time, where.
<unk> view.
You know you got in either the change here from the actual running dealing through covidien the operational position to when we start to fully get comfortable with that.
It's really is down about getting some return for us all in terms of the stock and then because of the stock already is woefully you know below its and Avi and if you had any form of improvement and you know prices price pressure would move up because those vessels maybe the older less.
Holes in our fleet, but that still.
Fairly new vessels compared to the world's fleet. So vessel values would go up and then there will be a.
Then with the fleet as large as ours, you would you would any way you want to do.
Pruning and you would be probably thinking so it would be.
The correct thing to do to sell some of those vessels just to increase liquidity to take down the up at that point that would.
Probably still remain between the net asset value in the stock price.
Yep.
In other words, we have fun basic operational liquidity would fund buybacks for example.
Okay.
Got it thanks, Robert that's really helpful. Thanks, Brian.
Your next question comes from Grand Lewis from <unk>. Your line is open.
Yes, Thank you and good morning, and good afternoon, everybody I'm Lars just kinda one wanted to ask you a little bit about you know as we continue to hear about potential shutdowns you know related to co. Good is you know whether that's in Europe or elsewhere is that starting to creep.
Hey, any.
Any issues around the live delivering cargoes I ye yes, if we were to flash for flash backwards to when this initially happened there started to be.
Delays in deliveries.
Whether we call that real storage or not is that something that we should be thinking about over the next couple of months, we kind of go into a prolonged period of.
Lockdown slowdowns or like just just kind of curious if you have any thoughts around that.
Hey, Greg.
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I have to say that we're not putting any kinda reemergence of of a contango ore storage play into our kind of analysis for the Q4, if it does happen.
That will be positive for our business. So you could say that you know it's there as a potential I think it's probably more are unlikely to happen under the second a lockdown.
Okay, because I think the oil.
Prices helped Oh pretty.
Pretty much discounted these things already.
The second thing is I think the refinery on min ops already and with the storage is coming down I think it has to be a really really bad lockdown, where somebody it's taking people by surprise when somebody the oil has been produced and needs to find a find a home getting it on the ship. So I think it's unlikely to see a kind of a remote.
And so second contango as we saw the first time around.
But if it does happen as I said, Oh, just be an added benefit.
Okay, Great and then just the other one that the only thing I wanted to kind of talk a little bit about is you kind of mentioned in the prepared remarks about marginal refineries.
Whether they're shutting down or permanently or temporarily yes, yes, I mean, I guess you know not knowing when the market is going to normalize weather that you know sometime next year or the year. After you know I guess my question is kind of coming out of this when we do normalize.
Just thinking about what's happened with some of these refineries, whether they're in Europe or elsewhere.
Yeah.
How are you guys How's the company kind of thinking about what product tanker demand is going to look like in kind of in your life.
When we make it through this.
Yes, just kind of you know just and that's under a backdrop of clearly you know there's been a lot of negative.
Sentiment at least or headlines around oil demand.
And so I'm just kind of curious what your guys kind of view is on that.
Thanks.
Okay, well I mean, I think its a clear effect or by an agreed by lot of people that will these refineries for the medium term to the long term you know oil has to be shipped for their field I think for sure. This is going to benefit and in particular, the launching of the larger vessels in as much.
As they need to think about dollar per tonne them they have to move product.
There's an interesting point when we talk about that well. These refinery events have happened globally. I mean, you know right from the U.S. was close to the U.S. East coast to the places in France in the Baltic you know the latest one was the one that BP announced closing down Kwinana.
In Western Australia.
These things you don't.
Have definitely a big impact as they need to then stop thinking about where the supply coming from and I think it's a pretty good thought to say that you know what the middle east, adding over a million dollars of complex refining capacity over the next year and a half mainly from Tucson, and the L. door and.
In Kuwait and also you know.
These are highly specialized refineries that we'll be able to supply. These particular places where otherwise they had local localize refineries and we will start seeing a huge uptick in ton mile. Because it's quite clear that you need a lot more shifts and suddenly you don't have a refinery in your backyard, but suddenly you have to think about a security.
Supply and also the distance that has to be covered.
Okay, great. Thank you Robby okay.
Okay.
Your next question comes from John Chappell from Evercore. Your line is open.
Thank you good morning, good afternoon.
Brian Robert I think the natural extension from Omars line of questioning then is what do you do with the liquidity and is now the time to do something with it. So I think three months ago, we were talking about paying off high cost debt and you hit a bump back like 52 million or $53 million. The converts so it sounds like that the deficit this trough.
A spare liquidity doing a lot of things to raise liquidity or is it still way too uncertain or too early to revisit picking out the convert or some of the higher cost pieces of paper or you know as you insinuated and also mentioned in the press release or to be more aggressive on the buyback.
I think we've certainly created a situation where we have options are.
We certainly.
Laid out I mean, I think the also the natural extension you are correct snacks extension of OMA is questioning but also in that questioning its a little bit like the philosophy that we're trying to put a.
A strong wall behind our back here with sitting there and were saying.
Look this is what we think that that you know.
That.
2020 has been extraordinary is shown as some wonderful things some terrible things, we're not totally sure, but we are we creating that liquidity that.
And have done so if you if you notice too we actually haven't bought back any stock or any converts FA.
Some days now and you know obviously, we've been we've been.
On the evil to because of lockouts, but also you know I don't think we would've done we've done a put a priority on.
You know building liquidity et cetera are I think that now that we can see from Brian's commitment committed finance and the cash we've got we're pretty well set that we've gone through a homeless things we could last all the way through till they know the end of next year on some.
Pretty disastrous.
Earnings and the earnings.
Earnings or market scenarios, so that gives us the optionality itself, but I think that the way to look at it is that you don't want to give up that optionality.
And tell you or use that optionality, unless you're really sure. So I don't think you go out tomorrow morning, and start you.
You know buying stock back like Crazy or Retrying Cook, that's like Crazy, but you gently monitor and if you are.
No. The one great thing is we really don't have really any reporting now until February March of the company can act in a.
Let's say quiet or way to the market because the idea of buying stock converts is to buy them for our shareholders at the lowest price.
So we can just sort of monitor and.
See how that market develops and one way to look at it would be.
You know you could use excess cash above the $10000 a day or whatever.
Whatever that notional level is.
While keeping.
That.
Buffer that high liquidity, there and tell you get some let's say definitive set position.
Mhm.
Understand the Siguiri got a way of answering but with you know we don't have.
There's no value for our shareholders to give a.
Road map to buyback so we'll convert buybacks.
HM Okay.
Okay, and then the follow up and you know so.
Somewhat forgive me for that but sometimes perception becomes reality with sort of your bulkers selling its bulk fleet you know at a pretty accelerated pace and.
And and Scorpio tankers, you know coming down to these levels, which as you mentioned before is a pretty absurd relative to your NPV or has there been any commentary and excuse me for not you know listening to the salt call, but as it really thought or commentary on salts long term position with Scorpio tankers is that part.
The the plan to finance the wind vessel or is that completely separate from the sell out of the drybulk vessels.
The commentary from salt as being that it did.
It doesn't have much capex outgoings, whatever it does you know.
We will find the you.
No signs that its contract is being very clear that it doesn't have.
The much capital commitments and so you.
You know till Twentytwenty two.
And that view, what the you really really creating a lot of cash that from from sold.
In the sale of its assets and self itself is very well aware that.
You know now wouldn't be the ideal time off for it to sell staying in as it wouldn't have to do anything that it wants to do.
I'd leave it at that.
Okay. Thank you Robert.
In Q.
Your next question comes from Randy events from Jefferies. Your line.
Oh, sorry, gentlemen has gone.
Okay, Randy how are you Randy good good.
So I'm not sure if largest along but you know certainly appreciate all the quarter to date rate guidance and in the prepared remarks, you know you can pretty much made it clear that the winner should be better. So just looking at quarter to date rates relative to maybe todays rates or obviously in the next few weeks here how do those compare.
Fair and then in terms of timing do you have any degree of confidence in terms of when LR twos can get to the mid twenty's in m. ours, maybe to the mid teens.
[laughter] [noise].
Hi, Randy.
I can't give you a specific date on these things Randy.
We will look at this more holistically in terms of what's going on and you make some calls on these things one thing is for sure that.
Every single year, you've had a winter market yeah.
And the winter market has always been very strong for a period that's tends to start after Thanksgiving and then no true true to February that is the case also in the let's say the weaker years, we've seen in 2017 18.
And I don't see why that should not happen to some extent. This year now I did mentioned that you know there the second wave of it and so on has some elements to it that we can't really 100% say what that means and one that's going to happen, but certainly as you know heating oil demand starts kicking off or the suddenly.
Hemisphere or you know.
Starts kicking off as well that there is you know obviously product that has to be moved.
I also mentioned I think in the prepared remarks about the we've seen stop towards you know that a substantial already so far this year since the the high LDL the of the cooling lock down first time at the same time. We also remember that we can you had about 85 million barrels.
Floating storage, that's taking down to about 20 now so it doesn't take that much to kind of move that needle.
So until the first part of your question talking about how weak the market is it's certainly weak right now as we anticipated for the third quarter, that's moved into the fourth quarter.
And the thing I think you tend to also should look about that does that mean that ships are just sitting around doing nothing that's not really the case. So you know.
The the notional element of this in my mind I'm, just trying to explain it better is that you know our ships are still moving so it's and I think other people ships are moving as well to keep their launch degree and it doesn't take that much of the suddenly you say well you know the export in the U.S. Gulf start moving back up again after the.
The numerous hurricanes that helps you know stop the bottom on the production down there moving across again, you're starting to see odds moves as well you know the Asian supply.
Supplying blood is going to be a big ticket item for for the fourth quarter as well apart from just know said weather related issues in the northern hemisphere.
So you know.
If you have it could be down as a as a date why I think Thanksgiving I think it's pretty much the tends to be around there, but we start seeing a stronger winter market and I don't see why that should not happen this year as well.
I'd I'd, just like to <unk> and run it like I'd add to that is that.
Tristan its basic terms I think that if everyone's honest with himself. If we look good you know rich.
Research positions or indexes. So all things I don't think any of you really would imagine that the yellow to use a a booking it you know this 18 plus number right now.
And that is a very healthy sign in the extent ad.
It's all about that Asian.
And Australasia and market in that develop there but.
But the fact that we don't have to wait.
We don't have too.
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Work too much you know, it's a big difference in taking a market from 18 to what do you call. It 25.
That that's that's not a much easier accomplishment then taking them if the market was down <unk> nine and 10, even taking into 15. So I think that the one thing that is and also losses favor here and talking about you know <unk>.
No I appreciate you asking him for a day to recovery I'll skim not just today, but at time as Dave what time of day, it will be [laughter], but one one aspect related to his confidence would be those analog to the working off a base level.
That you know.
Most people if they're really honest don't would not have expected.
That number to be what it is today.
Yeah, that's fair and ended the second part of that question was there was a stretch but I appreciate the Thanksgiving commentary just more on the first part just trying to see where we are today relative to the last I don't know month or six weeks, if there's quarter to date rates are higher than where we are today or if it's kind of in line with that currently.
There are about in line.
Great and then just last question from me any update on those fixed income investor calls in September I know you haven't seen much announcement. Since then so that kind of off the table or those talks are still ongoing and lot of the color, though we we we didn't continue that they could do the oh, so we can.
And give you now that we've been able to.
Disclose it is very similar to the that you've seen.
Seen in our press release today and Brian slides.
But we had alternatives to increase liquidity that we're just much more competitive.
Got it yet makes as well.
Well, thanks again looking forward to Thanksgiving for multiple reasons now and I will keep in touch thank you.
Your next question comes from Ben Nolan from Stifel. Your line is open.
Yes.
Hey, guys I'm, sorry, I I think it's all been pretty straight forward I, though the one thing is.
And actually I, you might have heard I I asked this on the on the Ardmore call yesterday, a little bit and it's just something that I've been thinking about the refinery aspect is very compelling I in terms of closing and new refineries opening and.
In the Middle East, but there is no one really big refinery in Africa seems like that's mostly in l. or to market does that give you any pause at all that if yeah.
West Africa is a major LR too.
Trafficking points of course like I have seen a.
The <unk> is that like a.
A big caveat to do the rebalancing equation or not from your view <unk> before I, let James and laws on so this is the the refined go you. Yeah. This is the one that was meant starting 20, then was 21 and 22 and now might be 23.
No I I Wonder standard, it's Q1 or Q2.
Okay and.
The.
James Laws would you like to answer that.
Sure Robert Hey that exchange so.
It's certainly a big refinery I think at this point I I was thinking it was going to come online in 2022.
Once it's at full capacity or police around 250000 barrels of gasoline 100000 barrels of diesel.
85000 barrels a jack per day, but to put this into context last year Africa had about a 2 million barrel a day refined product deficit of wage gasoline and diesel were about 1.8 million barrels. So even if all the refinery output is consumed domestically and oil demand in Africa doesn't increase for them.
Next few years, it would still need to be about 1.6 million barrels a day of refined products, but I do think this is a really good question because it showed a lack of refining capacity emerging an emerging market economies, where all the men described so Latin America is a very similar situation, except they're only adding around.
A 100000 barrels a day over the next few years and I guess lastly, I'd say in the cost of the refinery in Africa is something like $10 billion. If you include the fertilizer plant and the pipeline like 15 billion Bucks. So whether it's design in the middle East or Dan attain Africa, you know that's a decision to build these refineries.
Just made as early as 2013 in 2015. So if you start to think about the cost a time it takes to build a refinery and what's going on in the global refinery landscape today. It will be interesting to see you know what projects are announcer cancel going forward, but as far as lunch and outside of the middle East and China, We're seeing more closures some additions.
And I've tracked in our presentation that was a million confirmed a million barrels in from closure. So far. So I guess, you know kind of putting this into the overall context. The market certainly a big addition to Africa, but I don't think it'll solve their product deficit.
Theres more exciting developments, such as the middle Eastern refineries coming online and the global closures that will happen before the stocks.
All right perfect that James I appreciate there's a very comprehensive and helpful answer. Thanks.
From.
Your next question comes from and meet your Archer brands like having your line is open.
Hey, this is Kevin on for Amit I should a quick question on is there any potential for the company to diversify away from the product tankers into a new segment or vertical completely I think the answer it is a clear no, but it's relevant in the context of what's going on it so.
You are correct. The answer is a clear no yeah yeah.
They're completely different markets.
Right perfect all right. That's all I have for questions. Thanks, guys.
Sure. Thank you.
Your next question comes from Ken Hoexter from Bank of America. Your line is open.
Great good morning, or good afternoon.
Just wanted to follow up on your timing of rates when you talked about kind of seeing the winter bounce around Thanksgiving, maybe Robert or Lars Your initial thought on the your thought for rates into 21, given the storage impact kind of what seasonality, we should or change the seasonality because we could see as we go through 21.
Lots, maybe Scott first something I can see of the natural seasonality was lost can go through so that.
In more detail, but that's the the winter part of it and then we get into the spring.
The refinery downtime periods and then.
Then how that's going to be intertwined related to Covidien hopefully the final opening up of let's say the.
The Europe and the United States become you know hopefully they the the summer in latter half of next year, but laws, who like to tell you that.
Thanks for all that I mean, the way probably to look at it is if you look at ton miles globally or.
You know the ton mile measure.
William ton miles and I have asked that because there's about 225 million ton miles.
That is exactly the same as 2019 with a little bit of a drop now obviously.
In the fourth quarter, so, we're probably going to be flat what I've seen in the analysis for for next year and from some of the companies that I've seen is that it's moving up like 4% to 5% up to 236 to have in 37.
On some models are.
[noise] that is considered to be true I mean that is a lot of ships that have to be moved in addition to where we are now. So you know what rates will be 100%, hey, it's going to be a lot better than it is today. It probably is not going to be what it was back in April and June when somebody had a huge contango play, but what we're looking for is sustainable.
And with all the different things that are in place now with age profile will be or the <unk>.
Supply of vessels.
You know being benign the fundamentals generally obviously with the stock's going down it does not take very much before the relationship also between refinery runs and product trade somebody also correlates back again to a 100% so as far as I can see you know.
21.
With Kobe, let's say coming behind us and we have a vaccine in place and people start really moving across then you'll start seeing it.
The substantial increase in markets that means in absolute terms in Tcs I would rather not say right now.
I think also to add to laws is is that we we really.
Ignoring and this I I mean, it's so difficult to to sort of to look past what's happening at the moment look past. This dark cloud that was sitting in front of you know the world sitting in front of the coated but if if you're looking at already look at it in Australasia and perspective for the far east that their economies.
[noise] coming along great. The demand is coming along great here so.
The demand is going to sort itself out we don't know exactly but its going to.
But the supply side.
It's fantastic the supply side is absolutely incredible as we turned the year again, a whole bunch more I'm also going to next year.
You know almost triple the number of them all of us that are going to touch on 16 years old that have been ordered this year.
The M. amadio. They the supply side is locked down. This year has resulted in negligible orders, but that remorseless clock is turning on that aged fleet.
And that is in conjunction with continued consolidation, we're seeing a under current tier of consolidation and.
And pooling hopefully, we'll see some rational consolidation in you know in some of the companies you know continuing theme of of people.
Buying each other or merging to cripple Creek consolidation, but either way, we're going to see consolidation because vessels are going to leave this clean petroleum product market and move away in the position and that's something that seems to be you know.
Really ignored right now, we're continuing to see environmental pressures.
Precious that's going to really help the new fleets those vessels that consume less carbon to do their voyages et cetera.
And all of these things of Oh forgotten and Whats also forgotten and it is a pointed out earlier because all of us are distressed where the stock price.
Is that regardless of this covert physician this third quarter was the second best third quarter in 12 years.
Despite the hurricanes being thrown at us. Despite all this code would being thrown at CES, we had much what we've had much worse starts to the fourth quarter over the last 10 12 years than we've had before.
And yet that those LR twos or in a reasonable position. So you.
Yup.
There really is a lot to look forward to.
I wonder if that the supply side is low because of some shifting views on on carbon energy demand and Costco, noting that no I mean really not turning until June of 21.
You can throw your thoughts on that but but how about your thoughts on what scale of storage is still left in the market that needs to keep coming out.
I think to just to take the different positions here that I think Ken is.
There is a difference between the crude oil market and the product market. The crude oil market. There is a high degree of storage left on the ships. The crude oil market does not have the same dynamic of inherent demand ton mile growth. This product does it doesn't have that benefit the products marketed think think.
I think the straight off the opening of these middle eastern refineries is positive or products.
But you know at best neutral at worst detrimental for crude oil ton miles so.
So I think the <unk> I think we for too long just talked about tankers and we need to really divide.
Product tankers away from crude oil tankers, but James if you'd like to us the specific answer the specific question related to product inventories.
Yeah. So can as you know are you may recall in May they were at about 107 million barrels of refined product on the water today October averaged around 36. So we've seen a continued decline there.
And the average is probably somewhere around 10 million barrels. So so we're certainly living in right direction and then also in our in our presentation. We show what what's happening to U.S. Gulf inventories and I think thats important as well it tends to be difficult to get data on are there other countries and their inventories.
And then how much activities inside the U.S. call. It was nice to see basically you know inventories kind of peak in July at 166 million barrels and are down to 143. So we're seeing land base a shortage drives as well so I think both those states in context are certainly encouraging.
And then lastly, Brian just one financial one but your DNA declined sequentially from 17 18 million down in 16 is that are these internal cost moves you're making or is that where the $1 million gain hit on the income statement just wondering if their internal costs, you're making as well.
Yes costs are down obviously people are not traveling as much and.
We're always cognizant of our expenses I don't want to say that were.
Okay anything down, but it's also some timing.
Okay, Great that's perfect.
Thanks, Ken, but I would add just to kind of put it to the to the point, we were talking about with Ken because he wasn't.
Wrong related to tankers is that you know if for example, and I know and I'll use I use. This you know not saying no use Clarksons you know daily review today, you know just simply to have some third party.
You know all of the the product tanker markets you know on a dead weight per deadweight basis, so pound for pound basis, a doing a.
Doing better than yeah, the corresponding.
Crude oil markets at this stage and as we've said for various reasons, we see the dynamics in the product market being significantly better than crude.
Going forward certainly in the short to time.
Your next question comes from the young break ground B. Riley.
Thank you. Thank you have a good afternoon.
Robert you touched on.
On the crude storage still being high.
The decoupling of demand for crude versus product transport.
You laid out the that the dynamics includes including the opening of refineries committees, but how long do you think this decoupling will occur before you really need to see some sort of increase in global crude consumption.
James what do you want to answer that one just the starting from where the crude oil inventories are in comparison with the.
Products, what speed with what's been happening there.
Sure when so I think crude a floating storage peaked around 290, and maybe it's come down to.
Don't know 250, or so and the average is in that mid to high 150 to 200 range probably 150. So there. It's certainly been slower I think it's hard to say exactly you know.
What's happening or how long it takes on the crude side, but if you think about what's happening on the product side as you look at the largest product next quarters, but it's the U.S. in middle East, Russia, right and they all have access to cheap domestic feedstock. So I think you know as those refineries so sometimes try to import distant.
<unk> group for example in the U.S., we have light sweet shale, well, we want to imports and the heavier shower stop to balance are you able to create.
But I would say that those refineries are likely to export products as gasoline and diesel demand starts to pick up an even just made.
73% over the last four months, obviously, its a laggard a bunch, but the product and that hasn't come back you know month over month. So I would expect those refineries to ramp up production over time as demand comes back, but I don't necessarily know how much crude oil theyre going to need to bring in.
And at the same time you know there's also the changes that wires really mentioned I mean, we track 1 million barrels a close capacity. So some of these remote places like Australia, New Zealand bookings that are going to import crude are now you know it's going to be shutting down the refineries in the next few quarters and it creates a little bit harder to get to work out, but I I certainly.
At this this what's happening in refining station should probably continue.
And going forward and.
We also we also just on the supply side has that sort of slight difference to crude and that.
You know for vessel to be removed from the competitive crude oil tanker market. Normally. This is a result of scrapping and you know normally that comes as a more closer to around when the vessel ages around 20.
Whereas in the clean petroleum product market the removal isn't by way of scrapping is just removed from the competitive clean petroleum product market. Once the vessel crosses the 16 over 15 years old.
Great and Robert just quickly going back to Randy's question, you talked about the.
The good <unk> quarter.
Quarter to date fixtures on the LR twos of 18500, a day being a very very nice base level to show good operating leverage with any kind of step up in demand.
I don't know if you mentioned it but the Emirates at 11000, a day do you see that similar base level there to to get to the operating two to achieve operating leverage yeah. We could we could again, we look at this it let's say the technical shuttering of trading what the laws is dealing with every day so.
It he had rational reasons for what is going on is rational reasons are look we're dealing with the residual you know the last sort of period of taking down those.
Marine inventories, we've dealt with dealing with the refinery turnarounds, we're dealing naturally with the season and we've had an extraordinarily high level of disturbance in the U.S. Gulf.
Yeah I'm moving.
Meaning he hasn't got these rates Ah Ah Ah being done with it with with capacity being being broadly used so it really is a function of right. So it's not like you've got a whole bunch of a bunch of ships just lying around.
Doing nothing that first have to be.
Mm fixed before you can actually start to move.
Move on rights, so what that means he's telling you is as soon as you get increased demand you will get rate increase you don't need a whole bunch of time to absorb slack capacity.
Great. Thank you I appreciate it.
Things.
There's no for a great question at this time I would now like the clinical over back to Brian.
Okay. Thank you operator, and thank everyone for joining us today, well look forward to speaking to you soon have a good day.