Scorpio Tankers Inc.

Good morning and welcome to the Scorpio Tankers, Inc. Second Quarter 2022 Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to James Doyle, Head of Corporate Development and Investor Relations. Please go ahead.

Thank you for joining us today. Welcome to the Scorpio Tankers Second Quarter 2022 Earnings Conference Call. On the call with me today are Emmanuel L.A. Loro, Chief Executive Officer, Robert Bugbee, President, Cameron Mackey, Chief Operating Officer, Brian Lee, Chief Financial Officer, Lars Denker-Nielsen, Commercial Director. Earlier today, we issued our second quarter's earnings press release, which is available on our website, ScorpioTankers.com. The information discussed on this call is based on information as of today, July 28, 2022, and may contain forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements. For discussion of these risks and uncertainties, you should review the forward-looking statement disclosure in the earnings press release, 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 broadcasted live on the internet and is also being for playback purposes. An archive of the webcast will be made available on the investor relations page of our website for approximately 14 days. We will be giving a short presentation today. The presentation is available at scorpiotankers.com on the investor relations page under reports and presentations. The slides will also be available on the webcast. After the presentation, we will go to Q&A. For those asking questions, please limit the number of questions to two. Now, I'd like to introduce Chief Executive Officer Emanuele Oro.

Thank you, James. Good day, everyone. In the second quarter, Scorpio Tankers generated its largest quarterly profit in the company's history. The quality of the company as an investment continues to improve, and we are positioned to create shareholders' value in what we believe will be a multi-year cycle. We also believe, consistent with our actions, that the best way to do this is first through improving our balance sheet. In the first half of this year, we reduced our outstanding debt by $511 million, and in addition, our pro forma cash balance has increased by $360 million to $591 million through July. As we start the second half of the year, the company has declared repurchase options on six MRs under sale list back arrangements for $95 million. With this and scheduled amortization, we will reduce our debt by almost $700 million in the first nine months of the year. That counts for a 22% reduction in overall indebtedness. This debt reduction combined with rising asset values leads to a material improvement in the company's loan-to-value as well as net asset value. The third quarter earnings have started strongly. We have booked 44% of the days in the third quarter at a rate close to $45,000 a day. If we were to average $10,000 less, so $35,000 a day for the entire third quarter, the company pro forma liquidity would be close to $700 million at the end of Q3. Our customer expects the current market conditions to be sustained as evidenced by the increase in time charter rates, duration, and activity, and we agree with our customers. Global inventories remain near historic lows. The reopening of the global economy from the COVID-19 pandemic continues to increase the demand for refined products and seaborne exports. Demand for product anchor is expected to increase over the next few years, while supply remains constrained. And as we've mentioned before, there is a record low order book, an aging fleet, and upcoming environmental regulations coming into play. To conclude, our top priority remains reducing our leverage and increasing our liquidity. Thank you for your continued support, and I will now turn the call to James for a brief presentation.

Thank you, Emanuele. Slide eight, please. Our thesis and outlook remain the same as they did at the start of the year. We expect quarterly increases in refined product demand as the global economy reopens from COVID-19 pandemic. against historically low inventories and a constrained supply curve. Lars will speak to the factors that have resulted in a strong rate environment. But first, I will review a few key points as to why we expect the current strength to continue. Slide nine, please. At a high level, it may appear that Russia's invasion of Ukraine is the driver behind the current strength in the product tanker market. While it certainly created significant commodity price volatility, we have not seen a shift in Russian refined product exports going to Europe. Year to date, European imports of Russian refined products have increased slightly year over year. And the European diesel deficit shown in the lower right-hand graph is less about the conflict and more about a reduction in refining capacity and a shift to renewables. However, the EU has announced plans to reduce Russian imports of refined products by next year. If European countries were to completely ban Russian product imports, it is expected that these hydrocarbons would flow to Africa, Asia, and Latin America. To replace the lost Russian imports, Europe would have to source barrels from the US, Middle East, India, and Asia. In the event this happens, there would be a substantial increase in ton miles, as every replacement scenario requires replacing a barrel from further away. So what's been driving the market? Slide 10, please. Similar to Europe's diesel deficit, And regardless of the conflict in Ukraine, there is a global mismatch of refined products. However, continued improvement in demand as the global economy reopens from COVID-19 has exacerbated this mismatch. For several quarters, refined product demand has continued to outpace supply. Despite an increase in refinery utilization, inventories remain at historically low levels, and the increase in supply has not been enough to offset the increase in demand. This has been most evident in the global diesel market, but similar scenarios exist for gasoline and other refined products. The supply and demand mismatch becomes quite clear when looking at refining margins, which reached record levels and remain extremely strong. We view elevated oil prices and refining margins not as temporary, but rather reflect consistent underinvestment in the supply chain. The reason Brent crude oil is currently trading at $112 per barrel while diesel is trading at $140 is because there's not a shortage of crude oil, although that may come later, but a shortage of refining capacity. Put differently, global refined product demand is at or above pre-COVID levels, while refining capacity is lower and more dissipated than before COVID. This has led to an increase in seaborne export and ton-mile demand for refined products, as product tankers serve as the conduit to reallocate refined product barrels around the world. Slide 11, please. Changes to the global refining system continue to increase ton-mile demand, which is the quantity of cargo multiplied by the distance it needs to travel. This is important because an increase in ton-mile demand tightens supply and is a driver for a higher freight rate environment. From 2019 to 2021, about 2.6 million barrels of refining capacity closed, and a reason why refined product prices remain so high today. After a refinery closes, in most cases, the loss output needs to be replaced with imports. As you can see in the lower left, as Australia's refining capacity climbed, refined product imports have increased to replace the lost production. Over the last decade, we have seen a structural shift in refining capacity, which has moved further away from the consumer and closer to the wellhead. Excluding China, export-oriented refining capacity additions in places like the Middle East have offset closures of older and less efficient domestic refining capacity in places like Europe. Simply, these refinery changes lead to an increase in seaborne exports of refined product and the distance those products need to travel. New export-oriented refining capacity additions in the Middle East, U.S., and India will help to alleviate the global shortage in refined products over the next few years. However, it's difficult to change refining capacity in the short term, and thus we expect the global supply-demand tightness in refined products to continue to persist. Slide 12, please. Our view at the start of the year now remains the same. Refined product demand continues to increase as COVID restrictions ease. Given the challenge for refiners to increase main plate capacity in the short term, we expect existing refining capacity to continue to operate at higher utilization levels. We have seen this in the US Gulf, where refineries have operated at 97.6% utilization over the last four weeks, while diesel exports have hit record highs. Seabourn exports of refined products have been above pre-COVID level since March, and the underlying refined products market is expected to get tighter rather than going forward. We expect refined product demand to increase by an additional two to four million barrels a day through the end of this year. If 25% of this increased demand is exported, seabourn exports of refined products will increase by an additional 500,000 to a million barrels per day. we started to see the additional uptick in volumes in June and July. With inventories at historically low levels, the ability to supply demand from inventory draws is limited, and thus refinery runs and exports will need to increase. These developments create a very constructive environment. Seaborne product exports and ton model demand are expected to increase 3 and 10% this year, and we see several scenarios where this could be even higher. Next year, seaborne exports in 10 miles are expected to increase by an additional 4% and 6%, respectively. And these demand increases will be met by very limited fleet growth. Slide 13, please. The product anchor order book is at a record low, with 5% of the existing fleet on order today. Shipyard capacity is fully short-term, with orders from other shipping segments, such as containers and gas. With only 19 product tankers ordered year to date, we do expect more orders, but even if those were ordered today, it would not be delivered until 2025. Unlike other sectors, product tankers were not built in mass until the early 2000s. So scrapping has been minimal, and basically everything that's been delivered hasn't left the fleet. Today, there are 249 product tankers 20 years and older. By 2025, excluding scrapping, there will be 664 product tankers 20 years and older. That's more than half the fleet will be 15 years and older by 2025 without additional new building orders. Using modest scrapping assumptions, product taker net fleet growth will average 0.3% in 22 and 23 before going negative. However, if scrap rate that reflects the age profile of the fleet, supply growth is essentially zero next year before going negative in 24 and 25. All of this said, it's likely that the product tanker fleet trading in clean petroleum products will shrink over the next few years. Slide 15, please. The quality of Scorpio tankers as an investment and balance sheet continues to improve. As Emanuele mentioned, our focus has been on improving the balance sheet through debt reduction and maintaining a strong liquidity position. In the first half of this year, the company reduced overall indebtedness by $511 million. Net debt has also declined almost $750 million from the start of the year through July 27th. In addition, we recently gave notice to repurchase six MRs and sale arrangements for $95 million, further accelerating the deleveraging of the company. This voluntary debt repayment along with scheduled amortization and debt repayment related to a vessel sale will reduce our indebtedness by close to $700 million in the first nine months of this year. At the same time, given the strong rate environment, if the fleet averages $35,000 a day in the third quarter, the company could have close to $700 million in pro forma by September. This would result in a net debt reduction of $1.1 billion in the first nine months of the year. Slide 16, please. Scorpio Tankers has tremendous operating leverage. Every increase in spot rates above our all-in break-even goes directly to the bottom line. So far, in the second quarter, the fleet has averaged TCE rate of $44,800 per day. Assuming product anchor rates were to average $35,000 a day for the year, the company would generate almost a billion dollars in free cash flow before debt repayment, or a little bit over $20 a share, close to a 50% free cash flow yield from yesterday. If you include debt repayment, the company would repay $4.20 per share in debt and then get $742 million or $12.60 a share in free cash flow, increasing the NAV of the company by $16.80 per share. And now I would like to turn the call over to Lars for an update on the factors leading to the current strong rate environment. Slide nine, please.

Thank you, James. Over the last few months, we have witnessed a solid and constructive market across all the clean product tank segments. In my view, this is the real and sustainable market recovery that we have highlighted since 2019 and before COVID came and delayed the expected return of the healthy product tank market. The rate environment for Scorpio's modern fleet in all segments and geographies are very strong, with spot rates for LR2 trading today at $50,000 to $60,000 per day, MRs, at $40,000 to $50,000 per day, and the handy segment trading at $30,000 to $40,000 per day. The rate levels are for both index and non-index voyages. We can today see a robust diversity in cargo mix and destinations, providing owners with greater flexibility and optionality. The time charter market has taken a considerable upturn, and we are seeing substantial interest for first-class charters for long-term transactions. Today we see elevated interest for three- to five-year deals in LR2 and MRs, where rates have increased to $23,000 per day for MR and $30,000 for LR2. It is reasonable to assume from this substantial activity that our customers are aware the market has firmly transitioned into a sustainable and meaningful recovery. Going forward for the second half of the year, we expect cargo flows from the Middle East and India to increase The ARB from this key export region appears to favor more voyages over the coming weeks, limiting swing barrel supplies to Singapore and raising supplies to Europe, again improving the incremental ton-mile demand equation. U.S. Gulf exports of distillates and gasoline are now topping 2 million barrels per day, which is an all-time high. And even with the recent weakening in global refining margins, U.S. margins are currently averaging 22 barrel at the prompt, and U.S. Gulf exports continue unabated to Latin America. We anticipate that with the planned maintenance at three Brazilian refineries and the still firm Argentine power sector demand, this will add to the tightness in the Atlantic Basin product markets and will support distilled margins this autumn. We anticipate Brazilian imports will need to rise by up to 340,000 barrels per day between August and October, pulling further supplies from the U.S. Gulf and incremental swing barrels from the east of Suez. All, again, very positive for product tanker demand. The global market will remain short diesel as the deficit in refining capacity remains unresolved. This is despite Europe still importing Russian barrels. And should Europe sanction these barrels, they will have to compete for barrels further afield. It is important to keep in mind that the global product markets are reacting to their own refining capacity and stock constraints regardless of the regional dislocations brought about by the Ukrainian conflict. We have yet to feel the real benefits from the new Middle East refineries of Shazam in Saudi Arabia and Al-Zur in Kuwait coming on stream later this year. Euroland refineries are moving into turnaround, reaching approximately 1 million barrel per day by September, adding to their requirement to maintain imports. Product stock levels are low in many areas, and the market cannot flex with demand as was the case previously. The feed is aging. There are very low deliveries, and we are the doorstep of increased environmental regulations in January 2023, reducing, again, effective supply capacity. And with that, I'd like to pass on over to Robert. Thank you very much.

Thank you, Lars. Thank you, everybody, this morning for attending. Obviously, the present looks absolutely fantastic, and we're really focusing on the present as well. But we can't help thinking that however good the present is, the future just looks fantastic too, especially with the constraints around refineries and the actual new building order book as well. With both those two factors, the lack of investment in refineries plus the new order book is really very unusual for any shipping market at all. So with no more to do, let's just go straight to Q&A, please.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble the roster. And our first question will come from Omar Nakoda of Jefferies. Please go ahead.

Thank you. Hey guys, good morning and good afternoon. First off, congrats on a strong quarter and clearly your guidance here for the third quarter is looking even stronger. Spot market's been strong. Eco ships you guys have have been fantastic. Scrubbers are paying off in a big way. I did want to ask kind of a bigger picture on the market, and Lars, you touched on this. In the past few months, we've seen these very, very strong refining margins across the globe, record levels in Europe, Singapore, We have seen those numbers come off quite a bit here the past several weeks. How do you see this affecting the market in the near term and as we kind of go into the rest of the second half?

Hey, Omar. Welcome back. Look, as we've discussed before, it's back to the fundamentals that we've been discussing for a while now, and they're all in play. We have to think about this in kind of a... The stock draws are important that we've seen over the last 18, 24 months. The refining margins, of course, play a very big role, but it is only a small part, you know, as part of the overall picture. And I think as we move into the fourth quarter, we'll start seeing a pickup again in terms of that. The issue really is that there is logistical issues all over the globe. And the problem is sourcing, restocking storage tanks, replacement product is going to go further afield, and I think that's going to play a much stronger kind of position overall in the tanker market. So I think we're going to start seeing the ton mile really playing a much bigger role than we have seen in the past.

I would also add to that, Alma, that it's not like the refinery margins in the last few weeks have been low. They may have come off in the same sense as the oil price may have come off from its recent highs. but it's still been a fairly healthy market.

That's true, Robert. Good point. I guess it's recency bias, but they've fallen to levels we haven't seen. They've fallen to highs still that we haven't seen in years. I guess you all talked about what we've seen in the release. You booked nine shifts on these three- to five-year charters at good rates and really rates we haven't seen probably I don't know, at least these terms going back to maybe pre-financial crisis. Lars, you also mentioned that that market looks fairly liquid, the time charter market. I guess, how do you guys see yourselves deploying your fleet now? You still have a good amount of spot exposure, but you have taken these nine ships and put them on charter. What do you guys think about adding more? Do you expect to put a significant amount of your vessels on contract or stay primarily still spot focused?

I think that we're going to take primarily spot focused. I mean, you know, nine ships may sound a lot from nothing and nine ships would be a lot in most fleets, but you know, that's less than 10% of our fleet. We're still 90 over 90% long. And um, you know, I think that it's a very smart thing to do when they, when the actual time charter rate anyway on an actual, asset value basis are throwing off such a great return that you reach numbers they're throwing off double digit you know per share cash flows so by itself the rates are very very strong and so to have a handful as we're going through as we said said before where we're stabilizing the balance sheet to really create a solid you know rock of a balance sheet here to provide shareholder return and ultimately capital return, then this is a great little step here. It shows our potential lenders if we start to refinance later in terms of lowering our financial costs, lowering our breakevens, creating even more cash flow for the shareholder to show commercial lenders these three-year charters, potential five-year charters, that takes a lot of the guesswork out new investors too. I mean, we, we, we've got a bunch of charters as large as explaining high quality charters that are willing to pay, you know, three to five years for, for good rates. We don't have to put our own base cases in front of lenders. We can say, look, this is what the three year time chart rate is. Do your numbers on this as a base case and they get a lot of comfort and security. And any new shareholder can probably use that as a base race in a low case fairly comfortably, knowing that people who have way more information than us, i.e. the refineries and the oil companies, believe that the rates have to be going forward substantially higher than those charter rates. Otherwise, they would not take them. And for a considerable amount of time. Otherwise, they wouldn't take them for three to five years. So I think it's far more a signaling and at a comfort level all around than it is to, you know, it's certainly not a market call. We're very bullish about the market.

Thanks, Robert. That's great. Maybe just, you had me thinking just now, just regarding those charters, I guess we can't just simply say in passing, yeah, three to five year charter, it is pretty significant. Can you compare that? I guess the last time we saw a big surge in time charted demand was, I guess, the whole floating storage trade from a couple of years ago, early in the pandemic.

That wasn't really a big surge compared to this. Those were the one-year rates, two-year rates, nothing rates, six-months rates. So what? These are across a long period, two, three months now, gathering pace every week for a lot of different charters across all of the sizes in the product market. We haven't seen this since 2004, five, six.

Yeah.

So just spot on Robert. No, I mean what happened in during the super contango in 2020, it was a kind of a window of six to eight weeks. You saw, time charter rates that were kind of reflecting the value of the contango and, you know, charters were done for six months and there was maybe one or two done for a year and that was it.

Yeah. Okay. Thanks, Lars. Completely market today. And thanks, Robert. Things looking great. Well done. And I'll turn it over.

And all my good luck and congratulations.

Thank you. Thanks, Robert.

The next question comes from Greg Lewis of BTIG. Please go ahead.

Yeah, hey, thank you, and good morning, everybody. And, yeah, reiterate Omar's congrats on the strong quarter and the strong forward bookings. Guys, you know, Robert, you know, one of the things we always get from investors is around, you know, what South Scorpio plans to generate return cash to shareholders and you know it's funny that we're talking you know a couple quarters ago this was you know at at the bottom of the conversation and and just give what we've seen in the markets over the last couple you know this year it's really becoming front and center and you did buy back some stock um during the quarter just if you could kind of remind if you could kind of rank order how you think about the capital allocation realizing that there is still a lot of debt on the balance sheet that needs to be addressed, but just kind of where your head's at and how maybe in this market we can think about into 2023 kind of plans for Scorpio's cash flows.

Look, I think the first part you started off with is very key, that it was only six months ago that there was you know, questions from the investment community itself as to the basic liquidity of the company itself. And we were very clear on our first quarter conference call that we intended to use the cash flow during that second quarter to take down debt, to increase liquidity, which we've done. We also said that we would be there to buy stock if there was any what we considered dislocation in pricing, severe dislocation in pricing and sort of a liquidity event day that sort of happened. We weren't afraid to dive in. We bought the maximum we were allowed to by regulation on that day. And so we feel that we've been doing what we said we've been doing. We also said that you know, we were going to continue that policy through the third quarter that we weren't even going to approach our board with regard to the question you've posed until into September that we weren't going to anticipate spending or allocating capital that we hadn't yet got. And you can see from the presentation, it's quite right. We, you know, If we get, you know, we could even have lower rates for the balance this quarter and we could end up with an enormous amount of liquidity, even if we pay forward another, you know, $100 million to take down the lease fee. And yes, as we take down the debt too, we will be lowering the break even over time. We'll be at great counterpoint against, you know, any potential rising interest rates, et cetera. And that's the first step. And the first step here is to, as Emmanuel said at the beginning, to improve the quality of the investment. So we are going to stay that course through this third quarter. And, you know, what I can tell you is, I can more or less tell you what is what is not going to be on the list when we come back in September and start discussing things by ourselves, which is, you know, we won't be acquiring assets. We won't be, um, ordering new buildings. You know, we are going to, um, you know, want to have a lowered balance sheet and, you know, depending on where the prices of the stock compared to the, the net asset value, et cetera, will help determine how your allocation of free cash, once you've reached your various debt targets, will be, whether that's going to be stock buybacks or whether it would be dividends later. But it's way too premature for us to really give any exact view on 2023 right now.

Okay, hey, super helpful. And then just as we think about, you know, products and just given demand for products globally, I believe what earlier this month, China provided its quotas for its refined product export. Lars, any kind of comments around what is coming out of China in terms of the market where we are today. And is that, do you view that kind of as a headwind that could become a tailwind as we kind of move forward here? Or it just seems, it just seems like we're hearing conflicting information around China's exports or lack thereof of products.

Uh, look, uh, Greg, the, um, The refining utilization in China for the main refineries are much lower than their other places. So I would argue that anything that comes from China is going to be in the positive as they increase. You know, they came out with some new allocations this week. We are starting to see in the prompt as well more products coming out, in particular with diesel from China. So, you know, throughout the last three or four months, there has been a steady supply of cargoes. going pretty much everywhere, U.S. West Coast on the gasoline, the distillates mixed products into Australia, and also long haul going into Europe with distillate. And the thing that's really interesting is that it's not only on MRs, but we also see a lot of LR business being concluded out of China, and most of that matter also out of Korea and Japan as well. So The cargo mix is interesting. The volume, I haven't seen very much of an impact on rates. And I think it's fair to say that as we're moving into the third and fourth quarter, if there is an incremental increase in exports, it will benefit quite positively on the overall market in Asia.

Okay, super helpful. Thank you very much, everybody.

The next question comes from Lian Burke of B. Riley. Please go ahead.

Thank you. If we could stay on the macro for a second. The redistribution of global refinery capacity and margins and inventories are pretty clear. How much thought or concern is there about the potential volatility of overall crude demand as we look in through the end of the year and 2023? I know the expectations are for a bit of increase in consumption, but does that ever work through your thought process on the macro?

James, I'll let you take that.

William, good question. Absolutely. It will be interesting to see what happens with crude oil when the US and global SPR eases. We think and our view is that both crude oil and refined products markets are going to be extremely tight going forward. And we should see continued elevated pricing as a result of lack of investment in the supply chain over the last several years.

Okay. Your dividend has been very consistent through the cycle, and good times and bad. Is there any thought as to with the

stronger end market to give it a to take another look at it and understanding that you want to be fairly consistent in your payout yeah i think that the you know as we said previously that comes to you know how we're going to allocate these cash flows and the first thing is to the first thing sort of let's say i've sort of observed over time here is that whenever in these bull cycles you you you embark on something, whether it's buybacks or whether it's dividend policies, et cetera, et cetera, you better be doing that at the point that you're ready to really make it consistent and, and keep it, keep it going throughout. I mean, we, in my last company, we, we actually waited out the first year in the, in the strong market before we embarked on a share buyback that ultimately brought back 37 and a half percent of the company. And other companies who embarked on dividend payment policies were very successful in their valuation when they did so from a lower leverage positions and were able to constantly do it. And so I think that the important part to us of what you said is, you know, remaining consistent in doing that. And obviously, That will become one of the topics or alternatives that we could use in time, but right now we don't want to get ahead of ourselves. We don't want to think or discuss in detail money that we haven't yet earned. This has happened extremely quickly, this turnaround, this move from a company where we were keeping our men mindful on liquidity, making sure we didn't have to do any dilutive offerings or anything like that to a company that's generating enormous cashflow and capital. And you can see yourself that if you, once you start modeling the guidance we've given and what we've doing there, the company really is transforming very fast and creating that really solid balance sheet that you can really look at providing, you know, not something that looks good in a headline or a, or a news flash with regard to returns on capital, but things that are more permanent and more continuous. So we're just going to wait on that effect. Okay, thank you, Liam.

Okay. Thank you, Robert.

Thank you, James.

The next question comes from Turner Holm of Clarkson. Please go ahead.

Hey, good morning, gentlemen. So I was struck by the management commentary in the earnings release and also in the prepared remarks. And you all are talking about structural changes in the market rather than a sort of brief cyclical change. And, of course, you know, you book the nine long-term charters, I guess, historically strong levels. But on asset values, I mean, you're still seeing changes. at least what's being quoted, below new bill parity. So I'm just wondering what you all are seeing on asset prices as we think about changes in NAV going forward. They're going up.

Asset prices are going up as a result of, primarily as a result of the charters coming into the market. The security of the income provides ability to finance. That combined with stronger spot cash flows has created more cash and capital into the market. and a tremendous scarcity of new building deliveries, and the requirement of many companies to renew their fleets. I mean, there's a clock on a product anchor, and there's such a difference in earnings profile between a modern eco-vessel compared to an older non-eco design that that's leading to the prices there. And you're correct, they haven't yet reached new building parity, but the negotiations that are going on right now that we're hearing about would indicate that prices are about to take yet another step up. And that's perfectly consistent with the increases in the duration and the dollar price of time charters.

Okay. um thanks thanks robert and then um just just jumping back to the market um i mean i think a lot of the talk in the product tank market has just been about the disruptions to trade to the russia ukraine situation um but i think as james referenced it's worth noting the eu embargo for example isn't hasn't gone into effect yet um and uh you know lars or james i'm just wondering if you could you know, guide us through your thinking for the rest of the year? I mean, obviously, you know, very strong booking levels for the third quarter. Any thoughts so far on, you know, how the market could develop, especially as that EU embargo comes into place towards the end of the year?

I think that, you know, the moment... that the EU embargo becomes reality. The ton mile story goes out the window because the distance is simply going to supercharge the base case scenario in terms of how far product in particular district has to move to satisfy that demand. And you've got demand expecting to increase, I don't know, two to four million barrels per day throughout the end of the year. that product needs to be sourced further afield. You can look at just today's market and you look at the volatility that we're seeing and experiencing and what normally should seasonally be very kind of a slow market during the end of the summer. But you look at the U.S. Gulf just this week for the MRs, and this is on the back of all the diesel exports that are heading down to Latin America, as I was mentioning earlier on. I mean, there is so much product that needs to be moved And the thirst for the product is pretty much insatiable. And so suddenly people say, oh, there's been a bit of a lull in the U.S. health market. And then from Monday to Thursday today, you've seen the market rally for a cross-cabs run by $700,000 increase. You've seen the TA moves move from WorldScore 240 to WorldScore 335. You've seen Chile runs move from 2.8 to 3.8 million. This happens with such voracity. that just tells you that this capacity utilization that's in the market is across the board. So if you know that Russia is going to turn up its tap as far as supplying Europe, that product is going to go to Latin America, it could go to Asia. But then at the same time, you've got all this other product that needs to go back into Europe. So back to my point, 10 miles is going to go through the roof. So irrespective, The market says that the dislocations of Russia today, it's immaterial in terms of the prompt market right now because every market out there, irrespective of Russia, is requesting and needs the oil, and it's being supplied further afield. So it's a very bullish scenario that I would paint if you suddenly come up with, say, Russia has to shut off its taps for Europe.

Thank you very much, gentlemen. I appreciate it. Turn it back.

This concludes our question and answer session. I would like to turn the conference back over to Emmanuel Lara for any closing remarks.

Thank you, operator. I don't have any closing remarks. Just would like to thank everybody for their time today and look forward to speaking to you soon. The call concludes here. Thank you.

The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.