Paolo d'Amico Highlights Positive Product Tankers Fundamentals - Q2 2022 Earnings Call

The demand, oil demand is increasing. The market is still very strong. And the refining throughput are, let's say, at maximum levels. We have a little bit of a bottleneck here because a lot of refining capacity before COVID and during COVID is being shut down, and the new refining is coming in but it's not matching the reduction on a timely basis. And China is not using the full capacity of their refinery because they claim that they are consuming less due to COVID and they are not increasing the use of their own refineries. So we have a bottleneck in the refining system. But this tells us also that the demand keeps being very strong. And I will say the demand, as you remember in the past calls, we always said that the fundamentals were there. Of course, the Ukrainian war accelerated the system. The inventories, product inventories, are very low. We are under the five-year average. So even if we have a little bit of a slowdown at a certain point in the market, you have the restocking effect which should supply, you should increase the demand anyhow.

The vehicles hit the road again. We are still in a very strong driving season in the US and in Europe. Of course, the US is driving more gasoline demand, Europe is driving more diesel demand. Jet fuel is rising. We have a cap on jet fuel due to more operational problems than the real lack of demand because, as you know, we have total chaos in the European skies and this is limiting a little the number of flights which they could fly today. And we have a lot of then strikes going on. The long-term demand is there. And the participation of refined products, share of it to the total oil seaborne trade, it increased a lot over the last decades. And the change in the refinery landscape is basically most of it happening far away from the consuming markets. So this means a stronger demand effect on tankers, on our tankers or product tankers. The US shale is coming back slowly because it's mostly the ends of the private companies, but it's coming back and it will be the shadow of the future increase. OPEC production would be mostly out of the US.

Talking about demolition, we have a lot of state forces pushing a possible increase of demolition of ships. Next year we have two indexes coming out to rate our ships on the emissions that they emit. And this is going to create, one of course, a reduction of speed which creates a reduction of supply, and second, a lot of older ships will be non-economic to run and I think we will go for scrap yet. The pool of demolition candidates is growing. The yellow line are the 15-year-old ships. 15 years is a commercial limit, not a technical one, but it is a commercial limit where the first-class oil companies do not charter ships anymore. And 20 years, of course, is the age where you start thinking of scrapping your fleet yourself. Being of course the demolition grew a lot recently because due to COVID, all the shipyards were closed, so they are restarting and they have quite a number of ships in the backlog to scrap.

The new building orders are highly limited, I would say close to zero. This is due, number one, the fact that shipyards are full up to 2025, and this is mostly due to container vessels and LNG carriers which have been filling the yards everywhere. Secondly, today we have a problem to understand the future fuels for our ships. So the technology, even if there are various types of technology, we still do not know which is going to be the most common, the most manageable one in the future. So ship owners are reluctant to order new vessels due to this technology limit. And on top of that, the new building prices are by far more expensive than the second-hand ones on a parity. And then you have a lot of second-hand activity but none on the new building. And all this is creating a very low growth, close to zero. Maybe we in 2023 we think of a net fleet growth which is not even reaching one percent, when the demand will be by far higher.