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Scorpio Tankers Inc
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Hello, and welcome to the Scorpio Tankers, Inc. Third Quarter 2020 Conference Call.
I'd now like to turn the call over to Brian Lee, Chief Financial Officer. Sir, 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 Emanuele Lauro, our Chief Executive Officer; Robert Bugbee, our President; Cameron Mackey, our Chief Operating Officer; Lars Dencker Nielsen, Commercial Director; David Morant, Managing Director; James Doyle, Senior Financial Analyst.
Earlier today, we issued our third quarter earnings press release, which is available on our website. The information discussed on this call is based on the information as of today, November 05, 2020, and may contain forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward-looking statement disclosure in the earnings press release that we issued today as well as the Scorpio Tankers' SEC filings, which are available at scorpiotankers.com and sec.gov.
Call participants are advised that the audio of this conference call is being broadcast live on the Internet and is also being recorded for playback purposes. An archive of the webcast will be made available on the Investor Relations page of our website for approximately 14 days. There will be a short presentation that is on our website at scorpiotankers.com on the Investor Relations page, under Reports and Presentations. If you have any specific financial modeling questions, contact me later and we discuss offline.
I'd now like to introduce Emanuele Lauro.
Thank you, Brian and good morning or afternoon. Thanks for being with us today. The third quarter is seasonally the quietest period of the year for CPP [ph] tankers and this normal seasonal pattern was further reinforced this year by a steep throwdown in maritime as well as on shore inventories.
That said, I'm pleased to say that our earnings continued to show progressive improvements in the equivalent quarter in 2019 and 2018 respectively despite the extraordinary events of 2020. So we're pleased with the balance sheet, the progresses 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 drydocking and scrubber installations. So the vast majority of that is behind us now, which is another positive. As product market update is concerned, our Commercial Director, Lars Dencker 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'd observe that we are well positioned for the stronger seasons and normalization in the global economic activity.
In particular, our strategic focus on modern LR2s over the last couple of years has started to bear fruit. We see this in the rates and the strategic decisions that we've taken to seek to clean trays on our LR2s as bear fruits in 2020. It is to us have the impact of further lockdowns. We're experiencing it in a wide scale in the Northern Hemisphere these days and as I said, very difficult to assess the impact that this will cause.
However, inventories are largely back to normal levels. Many parts of Asia and the developing world are back to your normal levels of economic growth. We see the long-awaited opening of the new refineries in the Middle East as is online demand continued with the ongoing closure of all the refineries we actually see the impact, the positive impact on ton mile.
Supply continues to be benign against the backdrop of a rapidly aging underwater fleet. We've said this in the previous quarterly calls and we continue actually to see the description previously provided unravel quite favorably. So on the supply side, 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.
We of course have the question mark put up on us of COVID and 2020 in general; but however the fundamentals do look normalized and as I said we do see and look at the future with confidence.
With this, I'd like Lars to go through the market update please. Lars over to you.
Thanks Emanuele. Good morning, everybody. As expected, Q3 2020 has been a challenging period in the product tanker market, lower refinery production and margins, hurricane and isometric global demand recovery and key things throughout the period. A key driver during the initial phase of COVID was CPP commodity market contango price structure. Fast forward now to Q3 and that market pricing inertia was completely phased out, thus reducing the demand for floating storage, shortened time charters and the structural delays reports. As this catalyst for the tanker market wind down and incremental tonnage was reintroduced back to the spot market, rates did decline, although the initial resiliency of the spot market was noticeable.
All this being said, we saw a significant improvement in time charter rates in Q3 '20 compared to Q3 '19 and '18. While storage and short-term contract coverage carrying over from Q2 helps, the real underlying driver was the increase in demand from ease of restriction on businesses and land-based travel. This relative outperformance in Q3 has resulted in a slower start to Q4 due to heavy refinery offline period, which in combination of routine and extended maintenance and the proactive response to weakening refining margins, a record-breaking Atlantic hurricane season which decreased refinery runs in the major gulf refined region and we've seen an accelerated and substantial drawdown in onshore inventory levels, further impacting tonnage demand negatively in the province.
However, these headwinds do have some positive outcomes. As US Gulf refined product inventories declined 23.3 million barrels since July, and global light distillate inventories now approach five-year normalized levels and we've seen eastern demand picture emerge out of their COVID lockdown demonstrating V-shaped recovery curves, particularly in China and India and finer the acceleration of closing over 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 refineries has cut headline output. Roughly we retract 2 million barrels a day of announced refinery closures globally, including the temporary closures and the conversion to a storage or distribution terminal as opted by several marginal regional refineries and you could end up with a global reduction of $3.5 million a day. These refinery events seem to be equally spread around the globe.
In the medium term, these developments will support increased ton miles as products need to be supplied and further fueled supercharging the tonnage demand picture. The immediate reduction output from inefficient refineries is a vaccine we're taking the long-term benefit. This little rationalization has been widely discussed as new and sophisticated refineries are coming online and typically for the older units just can't compete economically.
As a short-term consequence from the pandemic these refinery closures coupled with large structural have had an immediate impact in spot market weakness, which illustrate this inherent flexibility we're already starting to see glimpses of demand rally and the potential for V-shape recoveries as evidenced in the Asian markets. Chinese demand is already up 6% year-over-year.
Nonetheless the current second wave will likely underline the precarious nature of any initial recovery. Early Q4 has essentially -- has so far traded sideways to slightly weaker on average globally and despite the challenges the market facing the second half of 2020, we remain cautiously constructive on how the year will close out, setting a positive recovery term as the approach winter.
Generally the product markets have overall managed compelling best utilization levels considering the trading headwind and the [indiscernible] factors previously detailed. Overly the seasonal historical trend, the positive CPP market fundamentals of constraint new builds ship supply, inherent ton mile increase and an accelerating age profile, this will provide the best momentum as we move into '21 in a post COVID world.
Thanks and appreciate the time and now I'll hand over to Robert. Thank you very much.
Hi. Hello everybody. Thank you very much Lars. We remain fundamentally very optimistic. I think it's important for us to separate the disappointment we have and all our shareholders have related to the stock price, compared to the underlying position of the company itself. This year -- 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 drydockings, our upgrades related to water ballast or scrubbers and have a fleet that is there set for a future full of recovery around the world.
As Lars said, we're already seeing good strong signs in the East. The East is developing very well and we're seeing the structural signs of the new refineries coming up in places, that's going to increase ton miles and we're turning towards say, yes there are issues right now in Europe, yes the COVID issues in the United States, but we should remember a couple of things. The United States we do not ship towards the United States. It is not that relevant to us what the US demand are for products during perhaps say a uptick in the next month or two related to COVID.
What is more important to us in terms of demand is that the Southern Hemisphere countries in the eight Southeast Asia, Australasia, those countries are turning towards their summer and cases are either right down as is the case of many Asian countries or are dropping as it turns into the season and turns into that demand. As it comes to the summer, yes there may be fewer people driving. We're used to that, but it's a heating season and we're reasonably confident. 2020 has been extraordinary, but we will go out on a limb to say that there will still be a winter in the Northern Hemisphere.
That it's hard to predict things this year, but that we're still pretty confident about going forward. The supply and demand now as a result of COVID, as a result of these changes to the refineries etcetera is a result of nobody ordering vessels, the aging of the fleet looks extraordinarily compelling. So it really -- we see it as yup, changing the season, doing this slowly developing, but this could kickstart extremely rapidly any time to the extent that the world can look forward and replace a very dark cloud of uncertainty with perhaps hope and sunshine, especially to the degree that a scientifically accepted vaccine were to be accepted to somewhere in the world over the next six, eight months or so.
And with that, we would like to open up questions.
[Operator instructions] Your first question comes from Omar Nokta from Clarksons Securities. Your line is open.
I wanted to ask about liquidity, but maybe if I may before I ask, since Lars is on the call, he spent some time talking about the market. I did want to at least ask about NASA orbs [ph], for much of the past few years, those orbs have not existed and that's taking away cargoes from the product market. There was a brief opening in May but I'd say that went away, but when we look very recently, it appears that those orbs have actually really widened in Asia at least over the past month and then more recently, maybe this week, we've seen in Europe.
And so maybe just Lars if you could, are you seeing any noticeable impact yet on the market where there is MRs or LRs in Asia or Europe as a result?
Sure, we've seen a widening of a NASA arb [ph] and we certainly have also enjoyed a lot of the cargos. Most of those cargos obviously are loading out of the Baltic, the continent or the Mediterranean and it is a constant flow at the moment but these uncertainties are going to diminish [ph].
Okay. Thanks. Just wanted to check on that. So we're seeing in the Baltic and in Asia. So really both sides of both hemispheres.
Basically we're just moving from the West to the east right.
Okay. Got it and then maybe sorry Brian just I wanted to -- I know you said modeling questions for later and I don’t want -- I don’t think this is modeling as much just simply thinking about the cash position, the liquidity and I just want to run through some numbers with you. You have to $209 million of cash as of yesterday and you’ve in the presentation and in the press release that there is use of liquidity, you got the $44 million lined up and you got commitments for $64 million and you're talking about refinancing 11 ships that would add $75 million. So altogether we're talking pro forma $390 million of cash and liquidity when you add all that up.
So maybe just first question just off the bed, am I thinking about that right? Is that pro forma to $390 am I on the right path with that number?
Yes, you are from all those points. Absolutely.
Okay. And so when we look at the debt repayments $33 million during the fourth quarter seems pretty manageable from here and then when we look at 2021, there's $390 million of debt due, but that includes roughly $100 million or so of maturities. So really it's $290 that we could say is amortization. So when we look at it going into 2021, pro forma is $390 million of cash liquidity, $290 million of debt repayment, that leaves you basically $100 million at the end of '21 assuming basically there may be a worst case scenario 2021 you don’t generate any cash flow operations, you're still coming out of '21 with a $100 million of cash.
From my perspective, that seems pretty good given the market, especially opportunity maybe for things to really start to kick upwards maybe in the second half of next year, but maybe just on that $100 million quote unquote number, are you comfortable with that as a figure thinking about total months from now?
All that's comfortable enough to be operating absolutely $100 million you can operate in that, but as you're pointing out here, you take away that $290 million of amortization and then out of the top line number, that reduces your breakeven rates significantly by $6,000 a day down to below 17 at this point because interest rates have fallen, so we’re below 17 and then you go down below another $6,000, you’re below $11,000. So you’re high earlier.
So Amit, it’s Robert. I need to add to that on this stage. I mean yes, that’s the correct mathematics. But you’re describing a market at that level that is lower than where it is right now during what Lars has described as lockdown, the worst period of the year, the refineries closing not yet got the benefits of the seasonal change, you’re describing a market worse than today for the whole of next year all the way through till the December 31 next year.
So Brian is very clearly saying to you yes, he would agree with your $100 million will be less than, he can manage $100 million will be left, but we’re not buying into that, we’re not giving guidance for next year. But we’re not buying into the idea the market is going to be that low for next year.
Yes, definitely we’re sitting here in the basically really trough worst case scenario situation. Maybe just one quick follow-up, you’ve outlined obviously a bunch of different avenues of cash and liquidity, one thing that you haven’t really touched on or done is really asset sales, you’ve done sale leaseback, how do you think about or maybe some of those MRs we have built 2012, 2013, they’re still relatively young for everybody, for the global fleet, but for you they’re on the older side. Any thoughts of maybe monetizing those just to improve liquidity or 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. We have given our reason just why we would expect the market would not be at those levels throughout the whole of the year. But the question in terms of monetized vessels that way is perhaps different question to liquidity, there can be a time where you've gotten the change here from the actual running of dealing through COVID, and the operational position to when we start to fully get comfortable with that.
And it really is then about, getting some return for us all in terms of the stock, and then because the stock already is woefully below its NAV and if you had any form of improvement and price pressure would move up, because those vessels may be the older vessels in our fleet. But that's still, fairly new vessels compared to the World's fleet. So vested values would go up and then there would be, then with the fleet as large as ours, you would anyway want to do pruning, and you would be probably thinking of, it would be the correct thing to do to sell some of those vessels, just to increase liquidity to take down how at that point that would probably still remain between the net asset value and the stock price.
Yes.
Yes, in other words, we would fund basic operational liquidity, would fund buybacks for example.
Okay, got it. Thanks, Robert. That's really helpful and thanks, Brian.
Your next question comes from Greg Lewis from BTIG. Your line is open.
Yes, thank you, and good morning and good afternoon everybody. And Lars, just kind of wanted to ask you a little bit about as we continue to hear about potential shut downs related to COVID whether that's in Europe or elsewhere, is that starting to create any issues around delivering cargoes i.e. if we were to flash backwards to when this initially happened just started 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, if we kind of go into a prolonged period of lockdown slow downs, or like just kind of curious if you've any thoughts around that?
Hey, Greg. I have to say that we're not putting any kind of reemergence of contango or 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, it's there as a potential, I think it's probably more unlikely to happen under the second lockdown, A, because I think the oil prices have pretty much discounted these things already. The second thing is, I think the refineries on mines already and with the storage is coming down, I think it has to be a really, really bad lockdown, where suddenly it's taken people by surprise with suddenly the oil has been produced and needs to find a home being on a ship.
So I think it's unlikely to see a kind of reemergence of second contango as we saw the first time around. But if it does happen, as I said, that will just be an added benefit.
Okay, great. And then just the other one, the other 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 permanently or temporarily, just I mean I guess not knowing when the market is going to normalize, whether that's sometime next year or the year after, I guess my question is kind of coming out of this, when we do normalize, and just thinking about what's happened to some of these refineries, whether they're in Europe or elsewhere. How are you guys, how's the company kind of thinking about what product tanker demand is going to look like in kind of
when we make it through this, and just kind of, and that's under a backdrop of clearly there's been a lot of negative sentiment at least or headlines around oil demand. And so I'm just kind of curious of what your guys kind of view is on that? Thanks.
Okay, well, I mean I think it's a clear fact agreed by a lot of people that move these refineries for the medium term to the long-term, oil has to be shipped for their field, I think for sure this is going to benefit in particular, the LR2 and the larger vessels in as much as they need to think about dollar per ton when they have to move product.
It is an interesting point when we talk about that these refinery events have happened globally. I mean, it's right from the U.S. West Coast to the U.S. East Coast to the places in France in the Baltic, the latest one was the one that BP announced closing down in Kwinana in Western Australia, and these things have definitely a big impact as they need to then start thinking about where's the supply coming from. And I think it's a pretty good thought to say that, with the Middle East adding over a million barrels of complex refining capacity over the next year and a half, mainly from Tucson and the Al Zour in Kuwait. And also these are highly specialized refineries that will be able to supply these particular places where otherwise they had localized refineries.
And we’ll start seeing a huge uptick in ton mile, because it's quite clear that you will need a lot more ship and some of you don't have a refinery in your backyard, but suddenly, you have to think about the security of supply and also the distance that has to be covered.
Okay, great. Thank you.
Okay.
Your next question comes from Jon Chappell from Evercore. Your line is open.
Thank you. Good morning, good afternoon. Brian or Robert, I think the natural extension from Omar's line of questioning been 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 had bought back like $52 million or $53 million of the converts. So it sounds like at the depths of this trough, spare liquidity doing a lot of things to raise liquidity, is it still way too uncertain or too early to revisit, taking out the converts or some of the higher cost pieces of paper. Or, as you insinuated and also mentioned in the press release to be more aggressive on the buyback?
I think we've certainly created the situation where we have options. We've certainly laid out I mean I think the also the natural extension, you're correct to natural extension of Omar’s questioning, but also in that questioning, it's a little bit like the philosophy that we're trying to put a strong wall behind our back here. We're sitting there and we're saying, look this is what we think that that the 2020 year has been extraordinary, it’s shown us some wonderful things and some terrible things, we're not entirely sure but we are creating that liquidity that and have done so, if you noticed here, we actually haven't bought back any stock or any converts for some days now.
And, obviously we've been unable to because of lockouts, but also and I don't think we would have done, we've done put our priority on building liquidity et cetera. I think that now that we can see from Brian's commitments, committed finance and the cash we've got, that we're pretty well set that we've gone through numerous things, we could last all the way through to the end of next year on some pretty disastrous earnings and the 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 use that optionality unless you're really sure. So I don't think you go out tomorrow morning and start buying stock back like crazy or retrying converts like crazy, but you gently monitor and if you, the one great thing is we really don't have really any reporting now until February and March.
So the company can act in let's say, a quiet or way to the market because the idea of buying stock or 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 could use excess cash above the $10,000 a day or whatever that notional level is whilst keeping that buffer that high liquidity there until you get some, let's say definitive certain position.
Got it.
I understand, this is a great way of answering but we don't have, there's no value for our shareholders to give a roadmap to buybacks or convert buybacks.
Okay. And then the follow-up and somewhat forgive me for this but sometimes perception becomes reality with Scorpio bunkers selling its bulk fleet at a pretty accelerated pace and Scorpio Tankers, coming down to these levels, which as you mentioned before is pretty absurd, relative your NAV, has there been any commentary and excuse me for not listening to the SALT call. But has there been any thought or commentary on SALT’s long-term position with Scorpio Tankers? Is that part of the plan to finance the wind vessel? Or is that completely separate from the SALT or the dry bulk vessels?
I think the commentary from SALT has been that it doesn't have much CapEx outgoings whatever it does with signs, the signs that this contract has been very clear that it doesn't have a much capital commitments until 2022. And you're really, really creating a lot of cash there from SALT in the sale of its assets. And SALT itself is very well aware that now wouldn't be the ideal time or for it to self thing, and as it wouldn't have to do anything that it wants to do. I would leave it at that.
Okay, thank you, Robert.
Thank you.
Your next question comes from Randy Giveans from Jefferies. Your line is open.
How are you gentlemen, how's it going?
Good, Randy, how are you?
Good, good. So I’m going to shift [indiscernible] long. But certainly appreciate all the quarter-to-date great guidance. In the prepared remarks, you pretty much made it clear that the winter should be better. So just looking at quarter-to-date rates relative to maybe today's rates, or obviously in the next few weeks here. How do those compare? And then in terms of timing, do you have any degree of confidence in terms of when LR2 can get to the mid-20s and MRs maybe to the mid-teens?
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, we've had a winter market. And the winter market has always been very strong for a period that tends to start after Thanksgiving.
And then through to February, that is the case, also in let’s say the weeks and years we've seen in 2017, 2018. And I don't see why that should not happen to some extent this year. Now, I did mention that there the second wave and so on has some elements to it, that we can't really 100% say what that means, and when that's going to happen. But certainly as heating oil demand starts kicking-off or the Southern Hemisphere starts kicking-off as well, that there is obviously product that has to be moved.
I also mentioned I think in the prepared remarks about we've seen stock drawers, that are substantial already so far this year, since the high of the current lockdown first time. At the same time, we also remember that we think we had about 85 million barrels of floating storage that's taken down to about 20 now. So it doesn't take that much to kind of move that needle. So to the first part of your question, talking about how weak the market is, it is certainly weak right now, as we anticipated for the third quarter that's moved into the fourth quarter.
But the thing I think you tend to also should look about it, it doesn’t mean that ships are just sitting around and doing nothing. That's not really the case. So the notional element of this in my mind and to try and explain it better is that, our ships are still moving. So I think other people ships are moving as well to a large degree. And it doesn't take that much. But suddenly you say, well, the export in the U.S. Gulf starts moving back up again, after the numerous hurricanes that have stopped the amount of production down there moving across again, we’re starting to see odds moves as well, the Asian supply envelope is going to be a big ticket item for the fourth quarter as well, apart from just, let's say weather related issues in the Northern Hemisphere.
So, if you have to put me down as of date, why I think Thanksgiving, I think it's pretty much tends to be around variable, we start seeing a stronger winter market. And I don't see why that should not happen this year as well.
Randy, I'd like to add to that is that the standard basic terms, I think that if everyone's honest with themselves, if we look at research positions or indexes or things, I don't think any of you really would imagine that a lot is booking this 18 plus number right now. And that is a very healthy sign in the extent to add that's all about that Asian and Australasian market and that development there.
But the fact that we don't have to, we don't have to work too much. It's a big difference in taking a market from 18 to what do you call at 25, that's a much easier accomplishment than taking them if the market was down at 9 and 10, even taking it to 15. So I think that the one thing that is in also Lars’s favor here and talking about, I appreciate you asking him for date of recovery, I ask him not just a date, but a time as day, what time of day it will be. But one aspect related to his confidence would be those LR2s are working off a base level that most people if they're really honest, don't would not have expected that number to be what it is today.
Yes, that's fair. And then to the second part of that question was a stretch, but I appreciate the Thanksgiving commentary. Just more on the first part, trying to see where we’re today relative to the last I don't know, month or six weeks, if those quarter-to-date rates are kind of higher than where we’re today or if it's kind of in line with that currently?
They're about in line.
Great, and then just last question for me. Any updates on those fixed income investor calls from September? I know, we haven't seen much announcements since then. So is that kind of off the table or those talks still ongoing and could you provide a bit more color?
No, we didn't continue that, the answer we can give you now that we've been able to disclose it is very similar that you've seen in our press release today. And Brian slides that we had alternatives to increase liquidity that were just much more competitive.
Got it, yes, makes sense. Well, thanks again, looking forward to Thanksgiving for multiple reasons now. And we'll keep in touch.
Thank you.
Your next question comes from Ben Nolan from Stifel. Your line is open.
Hey, guys. So I think it's all been pretty straightforward. The one thing is, and actually you might have heard, I asked this on the Ardmore call yesterday a little bit. And it's just something that I've been thinking about is the refinery aspect is very compelling in terms of closing new refineries opening in the Middle East, but there is that that one really big refinery in Africa seems like that's mostly an LR2 market. Does that give you any pause at all that if West Africa is a major LR2 trafficking points, of course, I have seen is that like a big caveat, to do the rebalancing equation or not?
Before I let James and Lars answer this is the earlier. This is the one that was meant to start in 2020, then was 2021, then it's 2022 and now might be 2023.
No, I just want to understand it’s Q1 or Q2?
Okay. Then James, Lars do you like to answer that?
Sure, Robert, hey Ben, it's James. So it's certainly a big refinery, I think at this point I was thinking of it's going to come online in 2022. Once it's at full capacity we’ll produce around 250,000 barrels of gasoline, 100,000 barrels of diesel, 85,000 barrels of jack per day. But to put this into context last year, Africa had about a 2 million barrel a day refined product deficit of which 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 the next few years, we'd still need about 1.6 million barrels a day of refined product. But I do think this is a really good question, because it's showing the lack of refining capacity in emerging market economies where while demand is growing.
So Latin America is a very similar situation, except they're only adding around 100,000 barrels a day over the next few years. And I guess lastly, I'd say the cost of the refinery in Africa is something like $10 billion. And if you include the fertilizer plant and the pipeline, it's like $15 billion. So whether it's Tucson in the Middle East, or Dangote in Africa, the decision to build these refineries was made as early as 2013, and 2015.
So if you start to think about the cost, the time it takes to build the refinery, and what's going on in the global refinery landscape today, it'll be interesting to see what projects are announced or cancelled going forward. But as Lars mentioned, outside of the Middle East and China, we're seeing more closures than additions. And I've tracked in our presentation, at least a million confirmed, a million barrels have confirmed closures so far.
So I guess, kind of putting this into the overall context of the market. It's certainly a big addition to Africa, but I don't think it'll solve the product deficit. And I think there's more exciting developments such as the Middle Eastern refineries coming online, and the global closures that will happen before this starts.
All right, perfect. And James, I appreciate this is very comprehensive and helpful answer. Thanks.
No problem.
Your next question comes from Amit Mehrotra from Deutsche Bank. Your line is open.
Hey, this is Kevin on for Amit. I had a quick question, 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 is a clear no, but it's relevant in the context of what's going on at SALT?
You're correct. The answer is clear, no.
Yes, clear no. There is completely different markets.
Right, perfect. That's all I had for question. 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 your thought for rates into 2021 given the storage impact, kind of what seasonality what changes to seasonality, we could see as we go through 2021?
Maybe scope for something, I could see other natural seasonality which Lars can go through in more detail, but that's the winter part of it. And then we get into Spring, the refinery downtime periods, and then how that's going to be intertwined related to COVID. And hopefully the final opening up of let's say the Europe and the United States come hopefully the summer and latter half of next year. But Lars would you like to take that?
Thanks, Robert. I mean, the way public look at it is if you look at ton miles globally, the ton miles as measured is in billion ton miles, and I have a stat that says is about 225 billion ton miles. And that is exactly the same as 2019 with a little bit of a drop now in the fourth quarter, so we probably got to be flat. What I've seen in the analysis for next year from some of the companies that I've seen is that it's moving up by 4% to 5% up to 236 billion, 237 billion ton miles. That is considered to be true. I mean, that is a lot of shifts that have to be moved in addition to where we are now.
So, what rates will be, I can 100% say 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 we suddenly had a huge contango play, but what we're looking for is sustainability. And with all the different things that are in place now, with age profile, the supply of vessels being benign, the fundamentals generally, and obviously, with the stocks going down, it does not take very much before the relationship, also between refinery runs and product trade suddenly as it correlates back again to 100%.
So, as far as I can see 2021 with COVID, let's say coming behind us, and we have a vaccine in place and people started really moving across, then we will start seeing a substantial increase in markets. What that means in absolute terms in TCEs, I will rather not say right now.
I think also to add to Lars’s is that we're really ignoring and this and it's so difficult to sort of, to look past what's happening at the moment, look past this dark cloud that we're seeing in front of, the world is seeing in front with the COVID. But if you're looking at already look at it in Australasia and perspective or the Far East their economies are 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 it's going to, but the supply side is fantastic. The supply side is absolutely incredible. As we turn the year again, and a whole bunch of more MRs are going to next year, there are almost triple the number of MRs, so they’re going to turn 16 years old that have been ordered this year, the supply side is locked down this year has resulted in negligible orders, but that remorseless clock is turning on that aging fleet.
And that is in conjunction with continued consolidation, we're seeing a undercurrent year of consolidation in pooling, hopefully, we'll see some rational consolidation in some of the companies, in continuing the theme of people buying each other or merging to create consolidation.
But either way, we're going to see consolidation, because vessels are going to leave this clean petroleum product market and move away into position. And that's something that seems to be really ignored right now, we're continuing to see environmental pressures, that's going to really help the newer fleets, those vessels that consume less carbon to do their voyages, et cetera. And all of these things are forgotten. And what's also forgotten and as I pointed out earlier because all of us are distressed with the stock price is that regardless of this COVID position, the third quarter was the second best third quarter in 12 years, despite the Hurricanes being thrown at us, despite all this COVID being thrown at us, we had much worse starts to the fourth quarter over the last 10, 12 years than we've had before. And yet those LR2s are in the reasonable position. So there really is a lot to look forward to.
I wonder if the supply side is low because of some shifting views on carbon energy demand and COSCO noting that tanker demand really not turning until June of 2021. But you can throw your thoughts on that, but how about your thoughts on what scale of storage is still left in the market that needs to keep coming down?
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 that the products market think the straight off here the opening of these Middle East refineries is positive products that at best neutral at worst detrimental for crude oil ton miles.
So 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 ask the specific question related to product inventories.
Yes, so Ken as you know or you may recall in May, they were at about 107 million barrels of refined product on the water today or October averaged around 36. So we've seen a continued decline there. And the average is probably similar around 10 million barrels. So we're certainly moving in the right direction. And then also in our presentation, we show what's happened to U.S. Gulf inventories. And I think that's important as well. It tends to be difficult to get data on other countries and their inventories.
But given how much activity comes out of the U.S. Gulf, it was nice to see basically inventories kind of peak in July at 166 million barrels and are down to 143 million. So we're seeing land base storage draws as well. So I think both those states in context are certainly encouraging.
And then lastly, Brian, just one financial one, but your G&A declined sequentially from $17 million, $18 million down to $16 million. Is that for these internal costs moves you're making or is that where the $1 million gain paid on the income statement? Just wondering if their internal costs you're making as well?
Yes, costs were down obviously, people are not traveling as much. And we're always cognizant of our expenses. I don't want to say that we're knocking anything down, but it's also some timing.
Okay, great. Thanks. Appreciate the time.
Thanks, Ken.
I would add, just to Ken's to the point we were talking about with Ken because he wasn't wrong related to oil tankers is that if, for example, and I'll use, I use this for not saying, I'll use Clarkson's Daily Review today, just simply to have some third-party. All of the product tanker markets on a deadweight for deadweight basis or pound for pound basis are doing better than
the corresponding crude oil markets at this stage. And as we said for various reasons, we see the dynamics in the product market being significantly better than crude going forward, certainly in the shorter-term.
Your next question comes from Liam Burke from B. Riley. Your line is open.
Thank you, good afternoon. Robert, you touched on the crude storage barrel still being high. And the decoupling of demand for crude versus product transport. You laid out the dynamics including the opening of refineries in Mid-East 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, you want to answer that one just starting from where the crude oil inventories are in comparison with the products? What's been happening there?
Sure, Liam. So I think crude floating storage peaked around 290. And maybe it's come down to, I don't know 250 or so. And the average is in the mid to high 150 to 200 range, probably 150. So there, it's certainly been slower. I think it's hard to say exactly, what's happening or how long it takes on the crude side. But if you think about what's happening on the product side is you look at the largest product exporters, whether it's the U.S., the Middle East, Russia, right, and they all have access to cheap domestic feedstock. So I think as those refineries will sometimes try to import different types of crude for example, in the U.S., we have lights, oil, we want to import some heavier stuff to balance our yield to create yield.
But I would say that those refineries are likely to export products, as gasoline and diesel demand starts to pick up, I mean even jets made 73% over the last four months, obviously, it's the laggard of the bunch. But the product demand has been coming back 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 they're going to need to bring in. And at the same time, there's also the changes that Lars really mentioned. I mean, we tracked million barrels of close capacity. So some of these remote places like Australia, New Zealand, Philippines that are going to import crude are now going to be shutting down the refineries over the next few quarters. So the crude side, it's a little bit harder to work out, but I certainly that this what's happening in the refining station should probably continue kind of going forward.
And we also just on the supply side, have that sort of slight difference to crude in that for vessel to be removed from the competitive crude oil tanker market normally as a result of scrapping. And, normally that comes as more closer to around when the vessel ages around 20 whereas, in a 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 to 60, over 15 years old.
Great, and Robert just quickly going back to Randy's question, you talked about the quarter-to-date fixtures on the LR2s of 18,500 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 MR rates at 11,000 a day, do you see that similar base level there to get to team operating leverage?
Yes, again we look at this, let's say the technical chartering of trading what Lars is dealing with every day. So it's he had rational reasons for what is going on, his rational reasons are look, we're dealing with a residual, the last sort of period of taking down those marine inventories, we're dealing with the refinery turnarounds, we’re dealing naturally with the season. And we've had an extraordinary high level of disturbance in the U.S. Gulf to shipments and refinery exporting ability by way of hurricanes, yet we've had as is shown by the LR2s a good draw to the Asian markets and the Australasian markets, so there's a reasonable demand part there.
And what we're getting at the moment is not great in respect for what you expect to get over a winter, or whatever, but it's not so bad considering that he can identify what it is and why those rates are so low. So therefore, it’s still tight enough. It's not as tight as the LR2s. But it's still tight enough to be able to move reasonably promptly from the level it’s now into the high teens, he doesn't have isn't need weeks and weeks and weeks to take it there, just the same as the LR2s could move in a second from 18 into the 20s.
That's really the importance of it, the market was at four or five, six, I mean thinking in compared to some of those crude oil markets where they were the markets really are pretty damn low, where you've got massive over supply, what he's saying is he said another statement too, which I think is very valuable for you to hear, which is the ships are moving, the ships are moving, meaning he hasn't got these rates are being done with capacity being broadly used.
So it really is a function of rates. It's not like you've got a whole bunch of ships just lying around doing nothing that first have to be fixed before you can actually start to move run rates. So what that means is telling you is as soon as you get increased demand, you’ll get rate increase. You don't need a whole bunch of time to absorb slack capacity.
Great. Thank you, Rob. Appreciate it.
Thanks.
There's no further question at this time. I would now like to turn the call over back to Brian.
Okay, thank you, operator and thank you everyone for joining us today. We'll look forward to speaking to you soon. Have a good day. Bye.
Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.