So, good afternoon, everyone, and welcome to Ardmore's 2019 Investor Day. Working here. So, you know, with us today, we have the bulk of our management team here. So we have Paul Tivnan, our Chief Financial Officer, who we all know, and then Gernot Ruppelt, our Chief Operating Officer. Mark Cameron, our Chief Commercial Officer. Mark Cameron, our COO, couldn't make it. He's just busy trying to figure out this fuel switch thing for later this year. But on a more serious note, Curtis McWilliams, our Chairman, sends his apologies. He has a bereavement in the family and couldn't make it, but he sends his best regards to you. And then in addition, today, we have a very interesting guest, Andrew Lipow of Lipow Associates.
My brief discussions with Andrew have made me realize that he has truly encyclopedic knowledge about the oil industry and about this topic in particular. And I think if anybody knows what's gonna happen, it's probably Andrew. And the other great thing about Andrew I've learned is that he's no wilting flower when it comes to opinions. So I think it should be very interesting. So for the agenda today, we're gonna start with an Ardmore update, a review of the product's macro fundamentals, our own view of IMO 2020. We'll then hand it over to Andrew to talk about his views, and then we'll have a panel discussion, but we're gonna mix in Q and A. So hopefully, it'll be a really interesting, lively, discussion.
Before I hand it over to Paul, initially, let me just say a few introductory comments on the main topics today, IMO 2020. I think it's, it's certainly a topic of fascination for anybody that's connected to the oil industry or shipping. And it's really unprecedented in scope, and it's also unprecedented in both the oil and the shipping industry's lack of preparedness for it. And we've been kinda wrestling with how to, how to characterize this. And, and one thing we've come up with is that it's really, you know, it's extreme uncertainty in the face of absolute regulatory certainty. This has been on the books for 15 years. We knew it was coming. So how, how could this happen? Makes probably some of you even wonder if, is it real?
And we think the answer lies in understanding the incentives for the participants in the situation. And I know Andrew's gonna talk about that in a certain amount of detail later on, and we'd love to hear your views on it as well. We're not here to convince you of anything, but merely to express our views and then also to hear the views of the real expert. And we hope that it'll spur some really good discussion and debate afterwards. So with that, I'll hand it over to Paul to give an overview of Ardmore.
Okay. Thanks, Tony. So I'll kick things off with an overview of Ardmore and run through a few, a few company updates. Okay. So the company. We're obviously a public tanker company listed on the New York Stock Exchange. Many of you guys know this already. We own and operate 25, 25, 25 Ecodesign product and chemical tankers. MRs are obviously the workhorse of the global tanker industry, and we'll talk more about it in a bit. We're a fully integrated shipping company with full in-house management with offices in the U.S., Europe, and Asia. We take corporate governance very seriously, and we know who we work for. We work hard every day to build value for, for you guys in this room. We have a low-cost operating platform and a key focus on, on operating performance.
The outlook for our market is highly attractive, driven by underlying fundamentals with some icing on the top with IMO 2020, and we'll talk a lot about that today. Finally, at our core, we believe that financial discipline and a focus on ROIC is the key to unlocking and building and preserving long-term shareholder value. All right. Next to our business, this is a nice illustration of where we sit on the oil value chain. Our vessels are all product tankers, and we carry all the CPP or the clean petroleum products from the refineries. So in simple terms, the key building blocks of demand for our business are underlying oil consumption for oil products, refinery throughput, and then voyage distances, which is essentially the distance between the refinery and where the oil products are in demand.
Turning next to our fleet, a high-quality, modern fleet of eco-ships with an average age of 6 years, which is probably one of the youngest on the street. All the vessels have been upgraded for enhanced commercial capability and fuel efficiency. They're all built at high-quality yards in Korea and Japan. A high-quality fleet will result in lower operating costs, higher utilization, and better value upside and resale at some point in the future. As we mentioned, our MRs are the workhorses of the fleet, and we like to describe them as the yellow cabs of the world tanker fleet. There are approximately 6,000 tankers in the world, over 10,000 deadweight. Of this, approximately a third are MR product tankers. So it's the largest sector.
The ships have most resilient earnings and in strong markets to do very, very well. They trade everywhere in the world, so they're the vehicle of choice for oil traders due to their versatility. That's our business. We'll turn now to corporate governance. As I'm sure everyone in this room will agree, historically, one of the challenges of investing in shipping is the lack of corporate governance and a misalignment of interests between management and shareholders. Now, thankfully, the tide is turning, and investors are focusing more on it than ever. We're pleased to say that Ardmore is ranked at the top tier of all public shipping companies. We have a fully independent board of directors with decades of experience in shipping and finance. It's a fully integrated company. We've got no transactions with affiliates. Everything is under one umbrella. So this is our board.
We've had two additions in the last 12 months, replacing two outgoing directors. The first there is, third on the list, is Mats Berglund. Some of you will already know him. He's the CEO of Pacific Basin, and you may remember him from Chemoil and also from OSG. And we've also Helen Tveitan de Jong. She's the chairperson of Carisbrooke Shipping, a dry bulk business based in Europe and also formerly a banker with DVB Bank. So we're very pleased to have them. Their shipping wisdom and their expertise on our board. Turning next to finance and operations. You know, we mentioned financial strength and discipline is important, and we've got a strong balance sheet and a solid liquidity position. At the end of the Q1, we had $52 million in cash, $22 million in net working capital, and the corporate leverage was 52%.
All the debt and finance leases are amortizing. We pay all $40 million a year, which is about 10% of the current outstanding balance, debt and finance leases. Last year, we completed a refinancing of 9 ships, with top-tier yards in China or top-tier financiers in China, Japan, and Europe, and in the process, diversified sources of finance and improved our financial flexibility and liquidity. In the past few months, we've completed the sales of 3 ships, the most recent being the Ardmore Seafair, which delivered to the new buyer last week. We intend to replace these with more modern ships at some point in the future. We'll talk more about this again, but we've got significant operating leverage, and every $1,000 a day increase in rates equates to $0.27 in EPS. Next slide is a quick look at operations, some of our key metrics.
won't dwell on this, but an important point here is that 90% of our dry dockings will be completed in the first half. So we're well set up for the second half of the year in terms of on-hire days for what we expect will be a substantial increase in charter rates. And in terms of CapEx for the next few years, 10 of the existing fleet have ballast water systems installed, and the remaining will be installed in 2019 and 2020 between 2019 and 2023, with the bulk being in 2021. We have a pretty diversified debt portfolio, and this is actually based on the financials as of the Q1, so that's why you'll see 26 ships there. We've taken a barbell approach to our debt profile, mixing finance leases with senior debt.
This provides a lot of flexibility, and it actually, you're enabled to achieve pretty competitively priced debt overall. The weighted average margin across all our debt is 3%. We're very happy with the leases we completed last year in China and Japan. It's an attractive and growing market for ship finance, and companies would be foolish to ignore it. Chinese financiers, in particular, are very selective, and they only really want to finance very modern ships. On the balance sheet, I won't spend any time on this, but the important point here is that we're paying off $40 million a year in debt amortization. Everything's amortizing, and we've got no significant maturities before 2022. And in terms of the significant earnings power, which I mentioned at the start, it's an important slide in the context of what we're gonna talk about today.
Over the next few slides, we'd expect, well, to present the argument that we'd expect there'll be a lot of increased demand and volume of CPP over the next 18-24 months. Analyst estimates for 2019, that's the base case there, the first column on the left-hand side, estimating $17,750 for MRs this year. And this equates to $0.58 per share. But if the market starts to perform and we can get in line to where we were in 2015, that would equate to $1.50 per share. And if we get, you know, if the market really kicks into high gear, which it did in the Q3 of 2015, which you guys hopefully will remember, then we're pushing out earnings of $2.25-$2.30 per share in EPS.
To put that in context, over the last couple of weeks, our stock has been nudging in on $8, which would equate to a P/E ratio of 3.5. So, you know, the earnings upside will have a pretty significant impact on the stock price when it gets going. On the last slide, we highlight the disconnect between share price and asset values. 2018 was undoubtedly a very tough year for tankers, but asset values have started to move up over the course of the last 24 months or so. They're up 20% since January 2017. Unfortunately, the stock price remains disconnected. It's obviously lifted off its lows in December and January, but it's still a long way off the trend where the steel has been going. We'd expect this disconnect to close over the next weeks and months as the charter rates start to build some sustained momentum. So that's it for me. I'll hand it back to Tony, who'll go through some recent market activity.
Thank you, Paul. So I got to dwell on this slide a little bit to kind of describe the journey we've been on together maybe, for the last few years, and how we're really transitioning now from a kind of a period of extended adversity to one of opportunity. And these are the kind of the elements that we've been dealing with and how they've kind of played out, recently. So, you know, the first point is that global oil inventory levels, including CPP, peaked in early 2016. That actually took, as we'll show later on, two years to run off. So by 2018, we were back down to normal levels. And I think that's an essential prerequisite for a healthy tanker market.
Oil price volatility, we'll look at that in a minute, as well, really flatlined for a good period of time up until, you know, last October, November. But volatility is back, and, and in our business, that's a very good thing. Oil volatility increases oil trading opportunities and activity, and what they do is, is move cargoes on our ships. So oil price volatility is good for oil traders. It's good for us. The weak crude tanker market last year led to some encroachment into our trades that was kind of unprecedented. But as those rates have recovered, they've, they've pulled back. The supply growth in our, in broadly in products, was, was quite elevated, through 2015 and until 2018. That's now substantially down, and we're, in fact, running well under the demand long, long-run demand growth rate. And so we're, we're in a tightening supply-demand situation.
That's before we factor in the potential impact of IMO 2020. The order book is low. It's not off the historical bottom of, like, maybe 5%, but it's still around 6%. We'll look at that as well. Therefore, you know, I think it's really critical, leaving aside IMO 2020, to understand that the fundamentals in our business are really solid. That's really the underpinning of everything that we're hoping for here. You've got IMO 2020, and, you know, you can think about it as a light at the end of the tunnel, and that IMO 2020 is that freight train coming at you. But this time, it's a good thing. We think, as we'll describe, it's gonna add an additional layer of demand that'll persist for quite some time.
So this just shows you how rates have kind of bottomed out. These are our TCE rates. And you can see that we're on an upward trajectory again. The overhang, product overhang is gone. We wanted to overlay the red line as oil consumption growth, and to make the point that we're back down. Actually, we're better off than we were in early 2014, in terms of consumption versus inventory levels. Oil price volatility obviously spiked this winter. It's down again. If you look at the little yellow dots, we wanted to highlight that typically, May of every year is a low point in price volatility. Andrew knows why. He'll tell us later if you want to know.
What's interesting is that refinery maintenance, there's a lot of anecdotal evidence and, you know, discussion, you know, on earnings calls with refinery companies, refiners about preparing for IMO 2020. And we've collected this data. We think it's real. And it, it's evident that there's been frontloading of refinery maintenance and turnarounds, both to get ready for what they probably anticipate is gonna be very healthy margins, starting in the second half of this year, but also to make changes in their configuration to change their outputs to optimize for IMO 2020. So, before we get fully into IMO 2020, product tanker fundamentals, I think this is an interesting slide. It really shows the supply growth of the product tanker fleet overall, versus the long-run demand growth.
You can see, interestingly, from kind of 2Q 2012 to 2014, you had a tightening of demand. You know, funny enough, that led to a pretty good market in 2015 and 2016, okay? Unfortunately, lots of capital came in and ordered too many ships. We're not anticipating that's gonna happen quite to that extent this time. But you can see that those have all delivered and run off. Really, for quite a while now, we've been running at a very positive deficit of supply versus demand. Looking, you know, again at the order book percentage of the existing fleet, it's basically at historical lows at this point. You'll notice, by the way, for some of you that kind of follow us closely analytically, we're talking now about product tankers and not just MRs.
We've kind of made that shift. We've kind of looked at it both ways, and, you know, it's not that we're gonna rush in and buy LR2s, but, you know, we do think that there's an argument that, you know, this is a broader factor than just MRs, that we don't live on a Caribbean island in paradise. We do get impacted by other product tanker sizes. And so this is overall. So, you know, things, even on a broader basis, are healthy. And in fact, for MRs, they're even a little better than this. Scrapping, again, this is product overall. You know, the average age of a product tanker scrapping is 25 years. These ships last a long time. And you can see there's a tail of plenty of candidates for scrapping.
And therefore, you have a fairly steady run rate of scrapping of our type of ships. We think that'll continue at about 30, 35, 40 ships a year overall. This then kind of looks at deliveries, scrapping, and the net result of net fleet growth. And you can see that we're just well under that longer-term, or even expected current, demand growth number. This is a new slide that we just—I don't wanna—really go through this in detail, but it kind of gives you a bit of a roadmap in terms of, you know, what drives product tanker demand. And I think what's new on here is the right-hand side. There's a lot to like about the first three columns that we've been talking about for the last 6 years.
That's been driving product tanker demand growth, we think, at not 4% but actually substantially higher. But then on top of that, you've got IMO 2020, which we think, even perhaps conservatively, we think is a layer of incremental demand of maybe 5%. You know, there's a lot of talk about oil consumption and growth, you know, kind of coming off, and people say, "Oh, it's down 7%." That's not a meaningful number for us. You know, if it goes down to 0.9, that may might have an impact. But whether it's 1.4 or 1.3, that's a very, very good baseline of underlying demand growth. And I think it's on the next slide. You have to understand that, you know, the denominator to look at is not 100 million barrels a day. It's something different. But before we get to that, this is the flip side.
You know, you produce oil, and it's gotta be consumed, gotta be refined. This is the trajectory of refinery capacity growth. In fact, the 2019 number is, I think, the highest in what, 30 or 40 years? Yeah, since the 1970s. But you know, these are long-term projects, and you can see there's all the capacity that we need to continue refining the quantities needed, driven by additional consumption. Then on the right, you can see that roughly two-thirds of the capacity additions are coming on screen in the Middle East and China, which are kind of trading-oriented locations. You might think, "Well, you know, why are we counting China as a trading-oriented location?" The answer is that they're building out the refineries ahead of their consumption. So they're becoming significant exporters of different types of products.
What we're seeing recently is, instead of just kind of going back down to Singapore, this stuff is going much further away from home. A lot of it's going to West Coast, South America. And from a ton-mile standpoint, that's very significant. So, you know, three years ago, if somebody asked me about China, I'd say it's really not a factor in our business. And now it is. And this is a point I wanted to make on the growth, that, you know, if you take the consumption growth, the denominator is not 100 million barrels a day. It's not 60. It's 23, okay? 'Cause that's the seaborne product volume. So obviously, not all 1.4 million barrels a day are gonna move on product tankers, but a good chunk will.
And in addition, you've got distance expansion, ton-mile expansion through distance, and you've got increased trade complexity, blending, activity, etc. So, that's how we get up to at least 4%, we think, higher. So, I'm rattling through this quite quickly 'cause I can't wait to hear it from Andrew. So maybe I'm setting you up too much here, Andrew. Anyway, but anyway, so this is our view on IMO 2020. Everybody's got a view. That's what makes it such a fascinating topic. A quick background for those of you that haven't seen this recently or haven't seen this ever. This is legislation that's been on, you know, kind of on the cards now for 15 years, longer. And if you look at the top line, you know, originally, the spec that we could burn globally was 4.5%, then it went down to 3.5%.
Now it's dropping to 0.5. That's a huge jump down. You can also see that in the ECA zones, it went from 1.5 to 1 to 0.1, which seems like a really dramatic drop. But remember, that only affected the emissions control areas, which essentially was coastal USA and, kind of coastal Europe, right? So it's not a really big part of the overall market. But the critical thing about IMO 2020 is that it affects all ships wherever they are in the world unless you can cheat and get away with it. So what are the options for shipowners? Just briefly, you can continue to burn 3.5% if you install scrubbers. And then you have a choice of putting in an open-loop system, which is cheaper, or a closed-loop, which is more expensive but maybe a little safer from a regulatory standpoint. Or you can burn compliant fuels.
And that's either gasoil, which is out there now, or this new thing, which nobody really quite knows what it's made of, called very low sulfur fuel oil, or VLSFO, or 0.5%. And that's the really fascinating topic, to, you know, kind of discuss and understand. The switchover is gonna result in, roughly speaking, 2 million barrels a day of that 3.5% having to be replaced by some kind of compliant fuel, whether it's gasoil or VLSFO. That's really significant because, again, this is not phased in over years. This is a flip of a switch moment on December 31st. And so the question is, you know, where are you gonna get this compliant fuel from? I mean, the more interesting question is, you know, how's it being made? And that's very opaque and very secretive, but very important.
But the first question is, where's it gonna come from? So the first option is you increase refinery throughput. That's obviously good for our industry. It means that more, more product is gonna be shipped around. The other option is that you take feedstock components out of the refinery stream. The problem with that, as Andrew will explain, is that that's you're robbing Peter to pay Paul somehow, right? So somebody you're taking that away from somebody who's already using it. And so what's the consequence in terms of pricing on, on spreads, etc.? And how does the, you know, the oil market respond to that? So that's really, I think, gonna be a central theme in Andrew's presentation. We think this is gonna be fairly persistent. I think maybe too conservatively.
We're estimating that we think this is gonna be, kind of a two-year thing. Other people think it could be longer. But it's gonna take a while to get to some kind of equilibrium point. So where does all this, incremental demand come from? What are the components? I won't go through this in too much detail, but we're talking about increased volumes of products, increased throughput, more demand for MGO. And then, of course, when you when you're increasing your refinery throughput to produce more middle distillate, you're producing other stuff. And where does that go? And what does it go on? Well, it's gonna go on a product tanker. Where does it go? Only the oil traders know, okay? But it's probably gonna go far away. So in 2015, we had a ship that carried gasoil from sorry, gasoline.
Loaded in Houston was gonna go to East Coast, Mexico. It got orders instead to go to Taiwan, okay? Got there, discharged, loaded jet in China. We thought it would drop down to Singapore. Got orders to go to New York, right? So that's what oil price volatility and dislocation does to product tanker ton-mile demand. In terms of the supply chain, again, a lot of this is really uncertain and unknown, but we think that, it's certainly not gonna make things simpler, right? You know, you're going from roughly having two types of fuels, which is 0.1 gasoil and the 3.5-3 and maybe more, right? So you're gonna have the gasoil, the 0.5, the 3.5. But the reason why I say at least three different types is, the 0.1, the individual 0.5 blends are not compatible with each other.
So they're gonna have to be distributed and supplied to the ships in a much more careful manner on barges than is currently being done with 3.5. So that just compliance creates a lot more complexity, and essentially dislocation. You know, there's some points of view that, you know, one of the aggregate effects here is that ships are gonna have to divert further away for bunkering operations. And that's gonna take basically supply out of the market. We think oil traders are gonna make a killing. Unfortunately, not too many of them are public. But they're gonna do very well out of this. They're gonna be moving all these blending components around, and they're gonna be moving distillates around as well, to as blending components and as gasoil. And that's gonna create a lot of demand for their trade.
Just in a very straightforward sense, we think that there's gonna be heightened oil price volatility, not just on the flat rate on the main exchanges on paper, but actual physical local price volatility that creates arbitrage opportunities and trading activity and ton-mile demand. And then another interesting angle on this is that, you know, as Andrew's gonna point out, there's gonna be a lot of excess, high-sulfur fuel oil. Well, once the shore tank's filled up, where does it go? It's probably not gonna go onto a VLCC because they don't have coils, right? So that's Aframaxes and LR2s. And that's actually good for us. So draw your own conclusions from this slide. But what we've done here is look at the, you know, annual jump or, you know, the move in incremental product seaborne volumes.
It moves all over the place. But you can see that when it was significant, up close to 1.5 million barrels a day, it resulted in very significant increases in charter rates, right? And we didn't dare put a number in on the right-hand side, but you can fill that in later if you want, so. But we think this is, you know, to the extent we see this kind of increase in cargo volumes, we think logic, the history there, the logic would suggest that, there's gonna be a significant, significant reaction in the charter market. That's what I wanted to cover. And I'll now turn the floor over to Andrew.
Well, thank you very much, Tony. I wanna thank Ardmore for inviting me to speak at this conference. The one thing that I will say is, in my presentation, the opinions expressed are my own. You know, the numbers that I've developed are from looking at a variety of numbers in the industry, for better or worse, to draw my own conclusions. Since I'm a great believer in supply and demand, you know, I'm gonna present a whole bunch of numbers that you can agree with, disagree with, delta off of to kinda come to a conclusion of what kind of impact IMO is gonna have. So, as Tony mentioned, there's a lot of opinions out there. A lot of times, I get asked, you know, what does IMO stand for?
Half the people say, "It's in my opinion," rather than, "International Maritime Organization." But today, I'm gonna talk about a few different things because here we are, seven months out from the implementation of this regulation, and you're starting to see things happen in the field, and that has implication on price and people's actions. I wanna talk about where's all the high-sulfur fuel oil gonna go? And the big question is, where's all the compliant fuel going to come from? And then the timing of this rollout and what we see and what my opinion is on where the price impacts are gonna manifest itself in the market and what you're gonna see, and then finally, the oil market implications. But to set the stage, Tony was mentioning IMO has been around for 15 years. That's a true statement.
What actually hasn't been around for so long is, what was the implementation date going to be of IMO, MARPOL, Annex VI, this last reduction in sulfur? Actually, what happened was, in 2016, IMO had to make a, a decision whether to implement the regulation in 2020 or delay it by another five years to 2025. Their decision was based on what is known as the CE Delft study, which is a consulting firm that came out and said, "You can go ahead and implement it in 2020 because there's enough compliant fuel out there, so there will be no market disruption." My opinion is, I fundamentally disagree with their conclusion for a variety of reasons, but I don't think, they evaluated the refining system in the way they should have. The IMO regulation, when we think about it, this is a reduction in sulfur emissions from vessels.
Refiners do not have to do anything to comply. There are 700 refiners around the world. If we look at high-sulfur fuel oil alone, for every 100 barrels of crude oil that refiners process around the world, only 4 barrels come out as high-sulfur fuel oil. In the United States, for every 100 barrels of crude oil that we process, only 2 barrels come out as high-sulfur fuel oil. From someone who has been in the refinery and traded fuel oil, this is what happens in the refinery. They make some fuel oil. They call the trader, and they say, "Get rid of it. We don't care what the price is 'cause we're not cutting crude runs for the tail wagging of the dog.
We are in business to make gasoline, diesel, and jet fuel, which accounts for 85% of the output of the refinery." So from the refining standpoint, this is just all it away. Now, because the regulation was decided in October of 2016, what you can see is the timeframe for refiners to make a major capital investment was quite short. The major capital investments that refiners are looking at cost between $500 million and $1 billion, and they take 4-5 years to do. And if you're in the state of California, the answer is, they will not happen because you will never get an air permit to do it in the next 10 years. So that's kinda what, why the refining system has done very little. The question is, what can the refineries do? And how does that impact on the tankers?
So I put on a very, very simplified refinery process flow diagram to kinda decide or to show the dynamic between what's happening. If we have to make more compliant fuel and we're gonna run more crude, you can see it goes to the atmospheric tower, and there's a variety of products that come off of that. The way to think about it is, if the refinery is making naphtha jet fuel and diesel fuel, that's gonna be carried on a clean product tanker. So that's known as clean petroleum products, or CPP. Everything else coming off the atmospheric tower and then going to what's known as a vacuum tower, it can be moved around the world. It trades, but it's known as dirty petroleum products.
This middle column of processing units, whether it's hydrocrackers or cat crackers or cokers, the way to think about it is, these are processing units that are upgrading these dirty petroleum products into clean petroleum products to satisfy the consumer demand. And when we think about what is the type of stuff that can go into the bunker market, there's a variety of these dirty petroleum products that are currently going to these upgrading units. And if the marine market pays me enough money for them, then the refineries will change their operation. And the question is, how are all these relative values gonna change to meet the requirement of the IMO demand? So just think about this as this is how we go from dirty to clean for what the refineries want.
Now, when we think about current bunker fuel production and what type of materials can go in there, there's some crude oil crude oil out there that's good for residual fuel blending. And then we've got these streams out of the refinery that can go into the bunker fuel, okay? On the other hand, if refineries are making residual fuel, the bottom of the barrel, what are the markets in which it can go? There's three choices. There's the utility market. But if you look around the world, a lot more utilities are going away from oil, especially in the U.S. We, for all intents and purposes, we don't really use oil for electrical generation, and does it peak power? But if you look overseas, it's gone to LNG. We've got road construction, mainly asphalt.
And there, the competition is cement, if you will, which is more expensive but longer lasting. But the asphalt market is growing at quite a small rate. The asphalt market worldwide is 2.5 million barrels a day, growing at 3% annually. And then we've got this marine fuel bunker market out there. And the high-sulfur bunker market, as we'll shortly see, is about 3.5 million barrels a day. And this IMO regulation is going to be affecting this marine fuels market. And where this stuff going into that marine fuels market is, how it's gonna be disposed of, and what's gonna replace it. So now, let me talk about numbers 'cause I like numbers. And my numbers are different than some of the other investment bank numbers or the consultant numbers. And so you're more than welcome to delta off of this.
So the question is, I'll start off with, where is the high-sulfur fuel oil going to go? The IMO regulation is happening. It's happening on January 1st. Something is gonna change. So if our current demand is 3.5 million barrels a day, you've heard there's vessels that are installing scrubbers. Now, then you'll hear how many scrubbers are installed and how many vessels have them. Well, on ferries and some other vessels, there's more than one scrubber on a cruise ship. So a cruise ship might have 3 scrubbers, but that's one vessel. But the way I think about it is, on January 1st, that is my date. What happens on January 1st? Because as we go through 2020 and beyond, the numbers change, and the market will change accordingly.
So if 2,000 vessels have installed scrubbers on January 1st, and they each consume, on average, 50 tons a day, which is what a VLCC consumes, that's 650,000 barrels a day. I'm gonna skip next to noncompliance. You might have heard, "There's gonna be vessels out there cheating," right, because they won't be checked. My example is the concrete carrier going from, you know, Vietnam to Myanmar. You know, they're probably gonna be paid with a $50 bill or a $100 bill rather than be checked by somebody. So there's gonna be some noncompliance. I assume that the compliance in the fleet is 85%.
That number in the industry has moved up from 60%-70% to now 80%-90% because when you look around the world, the majority of the bunkers are sold in a handful of ports, and the majority of the big vessels are owned by major shipping companies who are not gonna cheat. So I'm gonna have another 525,000 barrels a day of consumption. There's some high-sulfur fuel oil out there that can be blended with, like, diesel because you have to just blend it down to sulfur to make some compliant fuel. The only restriction on compliant fuel from IMO is 0.50 sulfur. IMO is silent on all the other qualities. They're just saying, "This is a sulfur emissions reduction, and so therefore, lower sulfur." So those three categories account for 1.475 of high-sulfur disposition.
So, of course, that's gonna eat into the amount of compliant fuel I need. But we're gonna get rid of some other high-sulfur fuel in a variety of ways. There's some refinery upgrades that are going. And I can tell you right now, my number is overstated because I looked at all the big projects that are out there. Some have come online already. Some are May of 2020. Some are July of 2020. But I've tried to be conservative and just say, "Well, that's 700,000 barrels a day." And then there's other things that can happen out there. You might have heard of power generation in Saudi Arabia or other things that I haven't thought about, like less Iranian fuel oil being on the market. You know, that reduces how much is left over.
But the bottom line is, I have over 800,000 barrels a day, which is roughly 240 million barrels a year of high-sulfur fuel oil that the industry has to dispose of, and it has to go somewhere. And its price is gonna provide an incentive for vessel owners and refiners to do something about it. The problem is, they're not doing enough on January 1st of 2020. So flipping over to the compliant fuel quality, as I mentioned, it's gotta be 0.50 sulfur, okay? And the industry is already expecting that the new bunker fuel pool will be distillate-based. So keep in mind, today, we're using that bottom of the barrel, and we think about bunkers as being residual fuel-based 'cause it's got all the dregs. It's the high sulfur. It's all that junk that we're trying to get rid of.
But high resid is high sulfur, but something that's low sulfur and that happens to be available is called diesel fuel. People are thinking, and the initial indications from the samples I've seen is, there's a lot of distillate that's going to make compliant fuel, and everyone is gonna have their own recipe of how to do it. So this distillate, which is a clean petroleum product, right, unfortunately, for a ship owner, contains 8% less BTUs than this residual-based fuel. So if I reduce the consumption of residual-based fuel, I need more gallons of distillate-based fuel, and that distillate is gonna be carried around the world on clean product tankers until it meets its ultimate destination. And then there's some other quality issues that are creating a whole uproar in the industry. We can get to that in the Q and A, I think.
So this distillate fuel, right, not all distillate fuel happens to be created equal. There's distillate fuel quality specifications for truckers and railroads, and there's distillate fuel specifications for the vessel owners. And the takeaway here is that there's more restrictive quality specifications on diesel fuel going into a vessel than there is for truckers and railroads, which means that the price has to go up. It reduces the amount of diesel that's available for going into the marine market. And if I need more diesel or compliant fuel, I've gotta come up with that. And one way that Tony mentioned is running more crude. And then there's a variety of other things that are out there. There's these other streams that if you go to the first page, there's this vacuum gas oil that we desulfurize because in the U.S., Europe, and Japan, we need to make low-sulfur gasoline.
We can desulfurize hydrotreated resid, and that is also going somewhere. But streams are available if the marine market buys it away from an existing application. So, you know, I will challenge all of you. You know, when you're going home, when you're driving or things like that, have you? When was the last time you saw us filling any of these products on the roadside because we simply had nowhere to go with it, right? You're not seeing, you know, around the Statue of Liberty, these big oil slicks. They're not on the Long Island Expressway, right? They're not in the subways. All the crude that we're running around the world today is going somewhere to some application. So if the marine market all of a sudden pays, it says, "I want some of that," it's gotta come from somewhere.
So the example that I do like to give is, anyone using any products made from steel and aluminum? Anyone? Anyone get a drink back there out of a can? So those industries are actually dependent on this hydrotreated resid to make what's known as anode-grade coke, which goes into electrode manufacture so you can extract the aluminum from the bauxite. Well, I do not believe that IMO is gonna shut down the worldwide aluminum and steel industry. Those industries are gonna pay whatever it takes to keep their feedstock into those plants to keep them running. Well, if that's the case, then all of a sudden, the marine market is dealing with these end users who no way are giving up their oil, and they're gonna be looking for more oil. And where does that come from? More crude oil.
So when we're thinking about where this compliant fuel can come from, right, well, you know, we said there's this VGO out there, but it's already being upgraded in the catcracker. So if the marine market pays me enough money, they'll get the VGO. But guess what? I make less gasoline and actually less diesel. So now the consumer with the automobile is now competing with the marine market. There's these refinery cokers, same type of thing where, you know, you're upgrading it into clean petroleum products. And, of course, then we have these resid hydrotreaters. So there's ways to make more volume today, but you gotta buy it away from an existing outlet. And this is the exact problem with the Delft study. They went around, and they looked at all the refinery capacity and all the processing units, and they said, "Aha.
In Asia, we've got 1.2 million barrels a day of this residual desulfurization capacity, and voilà, that's all going into compliant fuel, and problem is solved." And I look at it and go like, "And we're gonna shut down 1 million barrels a day of catcracking capacity and 200,000 barrels a day of this anode-grade coker capacity, and we're gonna move on as if nothing happened." That is the fault, if you will, in the Delft study. Okay. So let's look at the volumes once again. And what is how does this bode for tankers? Well, remember before, I said the, the current bunker demand is 3.5 million barrels a day, and there's 1.475. We're gonna deduct that because, it's gonna be used with high-sulfur fuel oil from vessels with scrubbers, from blending, from cheating.
And then those refinery upgrades that I had, these new processing units that are out there that are taking high-sulfur fuel oil and creating additional compliant fuel, they add some more compliant fuel out there. And I've overestimated this at 500,000 barrels a day because it's a nice round number. And if the number is less, then the situation as far as getting more compliant fuel only looks that much more dire. But you can see already, my shortfall is over 1.5 million barrels a day of compliant fuel. And if I take into account that it's more distillate-based as opposed to residual fuel-based and that, energy efficiency is another 125, so guess what? All of a sudden, it looks like we're short 1.6 million barrels a day of compliant fuel. Now, what I will say is there is other, you know, information out there.
Their numbers will be closer to 2, and even over 2 million barrels a day is their shortfall. And I think one reason is because if you would take out my refinery upgrades, you would automatically be 2 million barrels a day. Well, how do you come up with 2 million barrels a day of compliant fuel when all this stuff out there that refineries are running today is already spoken for? And not only that, as Tony had pointed out, world oil demand is growing by 1.4 well, 1.3 million barrels a day in 2019. And by the way, the IEA is expecting that world oil demand is gonna grow by another 1 million barrels a day in 2020, and that excludes this IMO effect.
So IMO is out there as a step-change function that's happening. We'll call it January 1st, where the world, the oil world, is trying to figure out what the heck is gonna happen with price and where's it all gonna come from. So it can come from by us simply running more crude. And remember, from that first slide, if I run more crude to make more compliant fuel, say a diesel, I'm actually gonna get more naphtha and jet fuel out of it. So that naphtha and jet fuel is gonna be carried somewhere around the world. Tony doesn't know because he doesn't know the secret trader password and handshake. But all us traders keep it close to the vest until the price tells us where it's gonna go. But the price is gonna actually dictate where it goes in order to satisfy the marine market demand.
So we can have this diesel fuel being carried to all different supply routes than we've previously seen where the residual-based bunker fuel has been supplying the market today. And that residual fuel has been supplied on dirty petroleum tankers. And now, if we're going to be distillate-based fuel, you can see how this is gonna provide more demand for clean petroleum product tankers. So what is the rollout? Now, you know, you look at a lot of the investor presentations, and they you would come away with the conclusion that this is really easy in the distribution system.
It's like, "I'm buying a new car, and the old one goes out of the garage, and the new one comes in, and there's absolutely no problem in doing it." Unfortunately, in the oil world, when we look at storage terminals and getting that oil from refineries to storage terminals onto the vessel, there's a whole bunch of things that are happening here. So we have this new grade of fuel, this compliant fuel, in addition to the old grade, in addition to MGO. So I now have three segregations of marine fuels whereas before, I had two. So all of a sudden, I need more storage for this new grade. And I need more storage for all the blend components that are going into this new grade. And unfortunately, not all blend components and recipes are alike.
So you have a lot of people we're already seeing it in the market where refiners and traders are saying to the storage operators, "What tankage do you have for the end of the year? Because you need to sign me up to handle all this stuff and this change." So we need more tankage. And then, of course, when you're in the terminal and you're going to the vessel, it's not like when you're pulling up to the well. In one sense, it is exactly like you're pulling up to the gas station. You go to your local gas station. There's premium gasoline. There's unleaded gasoline. There's mid-grade, right? And there's only one nozzle going to your gas to your car. Well, that's how it is in many locations.
Except on gasoline, you know, it's a diminishing amount, excuse me, you know, premium that gets into the regular or regular that's in the mid-grade, the consumer, they don't know any better. Except when you're doing it with resid, it's a whole big issue because the vessel owner is gonna be responsible to make sure that if he doesn't have a scrubber or he has 0.50 sulfur material, he cannot afford to have, you know, contamination in these lines. The same thing is true with these bunker barges. These bunker barges, the loading at the terminal, the going out to the vessel, they're putting the material on. Well, if you have a bunker barge that had high-sulfur material at 3.5% sulfur, there's always a little bit of residual at the bottom. You know, we call them bottoms in those tanks.
If you have a little bit left over and the blender on shore is making stuff that's right at the limit of 0.5 and you have contamination, you know what you have then? A mess because that whole barge has to be fixed before it's gonna go onto that ship. We've got an issue with the number of bunker barges that are out there that are impacting the logistics and distribution. Then, of course, I mentioned that we have this excess of high-sulfur fuel oil. Where's it gonna go?
Well, if I'm right and we're long 800,000 barrels a day and by the way, there's numbers as high as 1.1 million barrels a day at the length to as low as one of the investment banks are 100,000 barrels a day, I can move their number on some of their assumptions up to about 300,000-400,000 barrels a day. But the bottom line is, if you have an excess high-sulfur fuel oil and it's gotta go somewhere and it's not going to the marine market, it's not going to asphalt, it's not going to utilities, it's gotta go into storage. So we're gonna fill up onshore storage first, then followed by the AFRAs and the LRs that have coils to keep it. And that takes those barrels or those tankers, excuse me, and sidelines them in a storage play for quite some time.
So when is all this happening? Well, from the terminal standpoint, you've gotta start rearranging your tanks in the August and September timeframe. So tanks that had high-sulfur fuel oil, you need to empty them, kinda clean them out. And when we say clean them, it just means get rid of all the dregs that are sitting in the bottom of the tank. So this is an August-September timeframe. And then, of course, we see the industry looking for tankage now in that timeframe. But that has, you know, sort of a limited impact on price because the next question is, what is the timing of the rollout for non-scrubbed vessels? So here's how I think about it. On January 1st of 2020, if you don't have a scrubber, you're burning compliant fuel.
The IMO has said, "And by the way, we'll give you to March 1st of 2020 to get whatever residual high-sulfur fuel oil that's in your bunker tanks off your ship because if you don't have a scrubber, on March 1st, you're not even allowed to carry it in your bunker tank." Now, think about it this way. Vessel owners are built to receive fuel into their tanks just like your gas in your car. When was the last time you had to unload the gasoline in your car? Well, it's not set up to do it. You have to bring it somewhere so they can siphon it out. It's expensive. It takes time. And the guy's not gonna pay you anything for your gasoline. That's my opinion of what's gonna happen with the ship owners.
So ship owners who do not have a scrubber, they are going to ensure that they have no high-sulfur residual fuel left on board on January 1st. And what that means is it accelerates the timeframe for IMO actually into the Q4. Now, very interestingly, I, I'm gonna talk to a lot of people, and we all think about this date as October. That doesn't mean it can't happen sooner because Hapag-Lloyd went out there and announced they started cleaning their tanks on some of their vessels in April. And that was a huge surprise to the market because once you clean your tanks and go to low-sulfur fuel, you're not going back. So this, if you will, you know, has started the process of increasing demand for low-sulfur fuel at the expense of high-sulfur fuel.
So what I expect is that if we look around the universe of vessels out there, there's 2,000 vessels or so that are gonna have scrubbers on January 1st. That represents about 5% of the global fleet of vessels, if you will, that are eligible for scrubbers. And these vessels that have scrubbers account for 15% of the total bunker demand. So there's a whole bunch of ships out there that have to figure out what to do. When you're chartering a VLCC, like, you know, when I was trading oil and you're loading in Nigeria, you're getting these worldwide options. It might go east to Asia. It might go west to, you know, the US. It might go down to Brazil. That vessel owner doesn't exactly know where he's gonna end up.
And it's my opinion that he's gonna figure the timing of his purchases to make sure he runs out of high-sulfur fuel oil on whatever the shortest voyage is by January 1st. He might start burning low-sulfur compliant fuel in 2019. So what does this mean for the market? Well, you know, what it means is good news for diesel because the diesel demand is gonna go up, and that's gonna be carried by these tankers. And so right now, we think about it as diesel margin or diesel cracks for the refineries. And believe it or not, the difference in the forward diesel crack for the Q1 compared to today is very, very small. It's only $2 a barrel. So the market is actually sitting there.
They're trying to figure out, is Andrew right, or is he completely wrong and these other people are right? But I like to always go back to my supply-demand balance and say, "You can delta off of this, and you're more than welcome to do it." But there's just such a significant amount of a compliant fuel shortfall that when we get there, I think the market is looking for signs that it's real in the demand side. So I expect that diesel crack on is gonna rise from where it is today. I wanna say the forward curve is around $27 a barrel. It could easily be in the 30s. On the other hand, the market sees IMO coming, and on the high-sulfur fuel oil, it's pretty clear that demand is gonna go down.
So the calendar 2020 high-sulfur fuel oil crack happens to be $7 a barrel lower than where it is today. That number can have a significant amount of downside if I'm right because if you're long high-sulfur fuel oil, people are just gonna try to put it somewhere until the vessel owners and refiners do something about it. And, you know, so then we have these other impacts to a lesser extent. What's gonna happen with VGO? You might, if you're going to any of the refiner presentations, they're talking about diverting VGO out of their cat crackers. That improves the gasoline and diesel margin once again. So this is why the refiners think this is a hugely good thing. Jet fuel impact on the market price is unclear.
But certainly, if we're gonna run more crude in order to make more compliant fuel, we're gonna get more jet fuel out of it. And the jet fuel is not going into the side of the vessel owner. It's gonna be hauled around to some location, probably, you know, to the growth market, you know, in Asia. But even in the US, you know, our airline fuel demand is growing. So we've started seeing imports once again into New York and certainly into the California market and elsewhere. So we've got a lot of, you know, implications here on what's happening, whether you're clean or dirty. I think with that, I'll turn it back, and we'll go to the panel.
Thank you. I'm gonna try and moderate a panel. I've got a few topics here that we'll, we'll put to the panel, Andrew and Sonny and Gernot, in particular. Some of this we'll go into a little bit more detail on some of it than, really what we're trying to get to is the impact on, on tankers and, and particularly product tankers, which ultimately is our business. As we're covering the topics, I'll put it out to you guys as well. Any questions, just, put your hand up, and we'll get somebody over to you. And then when we've gone through the IMO piece, we will, we'll open up for more general questions on the company, at that point. So I guess first off, Andrew and well, ultimately, Andrew, production location. Where, where does all this get produced? And, and what new trades do you think will open up for, for tankers?
When we look at the refining sector, the U.S. and European markets are already running pretty much full out. Believe it or not, we've been maximizing diesel production for the last two years because that's what the economic says. You have to produce more compliant fuel in locations that you have refining capacity, and that happens to be Asia and the Middle East. If you're producing more compliant fuel in Asia and the Middle East, and you would look at where the shortfall is of these compliant fuels, well, a lot of it is Singapore. Some of it is gonna go there. But you're also gonna see an increase in demand for these compliant fuels into Northwest Europe, which is already short diesel fuel.
But when you think about the universe of these smaller ports that are around the world, you can see the dynamic now that previously, they were supplied on a dirty petroleum product, say, into a variety of locations in South America. Now they're gonna be looking for some distillate fuel into those ports in order to make the bunker fuel that they need. So you'll have a variety of dynamics where more, say, distillate exports out of the Gulf Coast go down to, to South America. Or if we actually consume more diesel here, we're already in ECA, so the effect is probably gonna be mitigated. Those South American markets are gonna be looking for more barrels really out of Asia.
Tony, anything to add on that in terms of trades for product tankers?
No, but I think Amit does.
Amit? You're up. Sorry, I didn't see him.
I had a question on the blending aspect of what you talked about. So, that strikes us as kind of the most interesting, you know, demand driver for product tankers. It creates this kind of total new, new addressable market in terms of new clean product kinda switching all over the world to blend down high-sulfur residual fuel oil. But how much of, you know, what's available to blend down, you mean the low-sulfur streams is actually available locally, to blend down with the high-sulfur fuel oil, because it's not necessarily, like, what's being used to blend down the high-sulfur fuel oil has to be put on the ship. So I don't know if any of your work has looked at how much local streams are available to blend down the high-sulfur fuel that may impact shipping demands from the blending process.
Okay. So the way we think about it is so let's take this in pieces. There's low-sulfur residue that's out there today. That's 0.3% and 0.5%. And the big three consumers of those are called power plants in Japan, Korea, and Puerto Rico. I would tell you, none of that is available because we're not turning the lights out in Japan or Korea or in Puerto Rico. They will pay whatever it takes. When we do think about blending, and you look at some of the residue, say, coming out of Valero up in, up in, Canada, it's a 1% sulfur. So that type of stuff can make its way to New York, make a 50/50 blend of distillate, and then you have compliant fuel. So that would be an example of, on my slide, where I assume there's 300,000 barrels a day of blending.
It's not as efficient as you think. If you look at what comes out of Mexico, their fuel oil is 4%. I've got to blend that by a factor of 8. It's impractical. One cargo of Mexican crude oil will satisfy the bunker demand in Long Beach, Los Angeles, and Long Beach for a month, right? So there's places that it will work. There's places that it won't work. I understand down in Colombia, they're producing, like, 50,000 barrels a day of 1.7%, I think, is the spec down the quality. You know, they're looking at actually the amount of compliant fuel they have is one-third of that volume. So if you're bunkering down in Colombia, the question is and that business doesn't change, where's that new compliant fuel come from? So I, you know, I could throw out a number, and you're absolutely correct.
You'd have to look at what I have in all of these markets. We're not gonna be hauling, you know, small volumes of residue to these small ports around the world because the cost of the freight is just gonna, you know, eliminate any advantage of doing it. Where you're gonna do this blending is places like Singapore, Rotterdam, Fujairah, Panama, Houston because you have the tankage there in place, and there's a variety of residual fuel quality.
Can I maybe add, you know, we already see now that we're seeing a lot more inquiry for Light Cycle Oil shipments. And it's a clean product, but it's basically, as I discussed with Andrew not so long ago, actually a cutter stock for crude oil and for fuel oil. So that's a trend we're already seeing today. And of course, if you look at the products market, the blending process is already well established. We see a lot of gasoline blending. And even there, you could argue, "Why don't we just blend it at the refinery?
Why do we need to ship the blending components from A to B?" Quite often, those blending components are also classed in different tax grades, and there's certain price differentials that actually still justify putting them on a full ship or even just a part cargo to move them from A to B because overall, it is actually cheaper due to how these commodities are classified by certain import countries.
So can I just add something to it, which is kind of taking a step back? You know, and it's interesting the discussions we've had the last day or so with Andrew. You know, all these blending components are already premium products, right? So they're going somewhere. They're valued somewhere else. And it just seems more and more to me I'm realizing that this is really gonna be solved through incremental throughput, and then, you know, moving around those incremental components. And, you know, that's, that's a little bit astounding, actually, when you think about it, compared to, you know, a year ago, the way you thought this was gonna be solved with just kind of reconfiguring the refineries. You know, the real, it just seems like it's gonna result in big price movements and spreads widening to increase the throughput, create more demand for crude, and incremental output.
Mike?
Yeah. One question. Can you go back to the slide on getting the excess barrels and HSFO? Didn't Sonny was clear. So one, where do you think global storage levels are for HSFO in terms of just kind of a max number?
Right now, they're pretty low. You can see in the U.S., I mean, we probably liquidated 20 million barrels of high-sulfur fuel oil inventory over the last 3 years.
Yeah.
Right? 'Cause we're down to, I wanna say, 29 million barrels or something. So, you know, I don't have a number of how much residual fuel tankage is out there, but, you know, there's probably enough for the world to cope with six months. What I will tell you on the tankage side is if you think about what's going on in the U.S., those high-sulfur fuel oil tanks, they've been converted to crude oil. They've been all for all the crude oil exports, a lot of the tanks actually are being converted into biofuel or lube oils or things like that because, you know, before IMO, people are saying, "Where can I get a better value for storage?" So there's probably less storage around there, but what people find is if the demand goes up for storage, somehow it starts showing up.
Right. So the US number's out there. We haven't been able to find a global number for HSFO.
Yeah. I don't think there is.
So if we just kinda double that figure, and we look at that 825, how long do you think we could produce that before it ultimately gets cleared in a meaningful way into the thermal power market or wherever it's going?
The thermal power, if you're talking about displacing coal.
Clearing it anywhere.
Well, let me give you some numbers. So today, the value of high-sulfur residue today or bunkers is, like, $57 a barrel. I wanna say in January of the Q1, it's something like 50 or 48 or something like that. The coal parity equivalent is $25 a barrel. So we are hugely far away from any utility thinking about converting from coal back to oil. And in fact, they're going the other way. They're going from coal to LNG. So I don't so there are some options in the Middle East. If you're talking about Saudi Arabia, they're looking at the value of Arab Medium crude versus residue. And that spread actually has to widen out some more in order to incentivize them to burn the residue. But they're already looking at that. It's been announced.
They've done some deals with the Polish refineries to get residue back and place their, their oil. The issue is once you fill up on-land storage, it's how many Aframaxes, VLCCs and Suezmaxes because that's what I think people are looking at. And of course, it's the older vessels, you know, that'll go into storage first, but the amount of tonnage available will go down, and that will lift the tanker market.
I don't know if that's a tough question to answer because of how long you think it takes to clear. Are we talking about?
So let me answer it this way. How long does it take to fix this problem in the market? Is that a good way? How long.
Yeah. I mean, long.
Do we get to a new equilibrium? I think it's 2023, 2024 because as the price reacts, refiners and vessel owners do something about it. But their timeframe in order to do something about it gets you to 2023 and 2024. A refiner, I mean, let's just look at Valero and Marathon. Valero, their project to build their $900 million coker is 2022. Marathon just announced they're canceling their coker project. So they're on the sidelines. Now, once they ask a scrubber manufacturer, if on January 1st, 3,000 vessel owners came to you and placed an order on January 1st, how long would it take the scrubber industry to fulfill those orders? Their answer was 2.5-3 years because the limitation is not manufacturing space. The limitation is naval architects, engineering, and the class society.
Right. Okay. So we get the 500,000 barrels using less specific numbers, and we use, I guess, the Suez or the equivalent. But that number per quarter is 8% of the global Aframax fleet, right? So there's a structural limitation around that. So that's kind of where I'm going with this in terms of how long does it take to clear once we absorb that global storage.
You mean afterwards?
Yeah.
I mean, you know, it still takes several years after that, right? 'Cause if you assume it's in storage, then you have gotta build enough capacity to chew it up. And so, you know, it's 2023, 2024 timeframe.
Okay.
This is gonna manifest itself in the sweet-sour crude spread, right? Because if you're a long high-sulfur fuel oil, guess what's gonna happen to the price of high-sulfur crude? It's gonna go down. And that'll keep the that's why everyone is positive refiners.
Right.
On IMO.
Jeff, do you have a question?
Yeah. I guess that's the next question. I mean, how much of this issue can just be fixed by switching from sour to sweeter crudes?
Okay. So let's.
Like, that's, that's not really baked into your chart up there, I guess.
Oh, in a sense, it is.
Okay.
Because well, let's think about this, right? So I'm a refiner. My background's refining. Okay. And we've had 2 companies already announce they're gonna do exactly that: Saras and Hellenic. They're running some amount of high-sulfur crude, right? They're gonna back it out. They're gonna now run sweet crude. So let's suppose 100 refiners decide to do the same thing. They're all gonna go out there and run light sweet crude. First question is, where's that light sweet crude gonna come from? And if they all do that in a material way, isn't the price of light sweet crude gonna go up relative to everything else? On the other hand, if all of these 100 refiners decide, you know, something Saudis, Kuwaitis, Iraq, I don't want your high-sulfur crude, where's that high-sulfur crude gonna go?
Because 3.5 million barrels a day of high-sulfur fuel oil equates to about 10 million barrels a day of high-sulfur crude or so. We're not shutting it in. So if all these guys, if a certain subset of refiners say, "I'm switching from sour to sweet," and some of these guys are, then guess what? The sour price relative to sweet goes down.
And these guys, Hellenic and Saras, might go, "Give me some of that back because their biggest issue is that the value of the high-sulfur residue coming out of the refinery, it may be worth zero. But if the price of the high-sulfur crude goes down, right, if Western Canadian Select today at $16 under WTI, if it goes to $50 under WTI and high-sulfur fuel oil is free, take it off my hands, they will do it," right? So that is the dynamic that's at play. It's just not the one sweet-sour switching. The question is, once I've made that sweet-sour switch, where does the high-sulfur crude go to? And guess what? It may come out at another refinery and not impact the balance as much as you think.
I mean, the follow-up to that, though, is, won't just more sweet crude be incentivized before? I mean, there's plenty of sweet crude right now in the world, right?
well,
I guess that's open for debate, but.
Well, you know, let me just put it this way. Do you agree or disagree with this statement? World crude oil inventories are drawing.
What week?
Huh?
What, which week?
Over a month. Not the EIA. Over a month, world oil demand, world oil crude oil supplies. They're drawing because OPEC and non-OPEC producers have decided that they are gonna draw world oil inventories, right? Once those inventories are depleted, then you need more production from somewhere. If, when Tony was talking about earlier about incremental oil production out of the Middle East, Saudi Arabia, Kuwait, Iraq, all those countries, it's called high-sulfur crude. The place that's producing incremental low-sulfur crude is the Permian Basin, right, and some North Sea. And I haven't kept track of, you know, some of the Norwegian fields or things like that. But the incremental crude in the world, other than the Permian, it's all sour. So if we have a shortfall of crude oil, you're not a believer, but I don't think. But that's how I view it.
Diane's question is in the right.
Sure.
So if we think that OPEC is gonna do a good job trying to manage that, as they've been showing a willingness to do, and we think that in today's number of us, incremental growth is affirming 500,000 barrels and 1 billion barrels a day.
For the next four years.
Okay.
Under that scenario, does that help change the equation?
Well, directly, I would say that incrementally, you're gonna get some more compliant fuel out of there, right? I mean, you can't deny that. The question is, when you say the Permian is gonna go up 1 million barrels a day, say, over the next 4 years, and forgetting about IMO, if world oil demand goes up 1-1.2 million barrels a day, we already need that oil, if you will, for organic growth other than IMO, right? A lot of these refineries that we saw coming online, you know, in China and Brunei and things like that, they weren't built because of IMO. Those projects have been around for 10 years. And these Chinese refineries have already been delayed for 4 and 5 years. I mean, they're getting built, you know, to meet organic growth. No one said, "Aha.
Let me tell you, let me have some of that IMO. I'll build a new refinery." So a lot of that oil I mean, I appreciate what you're saying, but the way I kinda think about it, we have IMO happening at the same time that world oil demand is growing. Yes, we've got a lot of light sweet crude coming out of the U.S., but it's also gotta satisfy both constituencies, if you will. So if I have this one-time shift change demand in what IMO is doing, I need to run more crude oil just to meet that one-time demand 'cause here's because the big picture is this high-sulfur fuel oil, right, it's going into storage. Storage is one-time demand. As that one-time demand, you know, happens, on the other hand, I've got IMO, which is also creating one-time demand.
If the price of high-sulfur fuel oil was free, I think you would agree that every vessel owner and they thought it was gonna be free for 10 years. Every vessel owner would, you know, call up Wärtsilä and say, "Get me a, a scrubber until we reach some new equilibrium." At the same time, the refiners would do something about it. So you then have to have the dynamics that the industry has done something to take this stuff out of storage, right? That creates new supply that's offsetting the demand for world oil, right, because it's now coming out of storage, which is one-time supply. The problem is that the timing is all off for all of this stuff between, if you will, 2020 and 2024.
Just to follow up on my question earlier, kind of in the context of Greg's, if you look at that number through 2023, that's the entirety of the global aftermarket fleet in storage.
Well, what happens is it's some, remember, I said these are of January 1st.
It's fall. Yeah. But it's just fall. But that's per day, right? So it's.
Per day.
Per day number, right? So that's, that's the entirety of the global afloat MR fleet just sitting idle in storage, obviously, at high-level maps. So if we fast-forward to 2030, you know, 2020, and you're sitting up here giving a presentation, is that one of your biggest floating storage, one of your biggest talking points? And if not, what is?
Well, actually, my biggest, you know, talking point is whether or not you should invest in MIC, right, because they have IMTT, right? So I think about it as.
What about the global acronyms?
Sure. Because Macquarie Infrastructure Corporation.
Okay. What's the IMTT?
That's their big 15 million-barrel terminal in St. Rose, which has a lot of fuel oil storage.
Okay. Let me know.
As well as in Bayonne. Because that's something that you can trade on an equity basis, right? So if storage demand goes up, that's a company, you know, that benefits by being positioned in the, the dirty side. The reason I don't have an opinion on the tankers is because I don't go out there, and I don't count the fleet. I don't know what the tonnage is. I don't look at, you know, what the, the distribution is of age. But what I do think is directionally, you know, some of these older Aframaxes and things like that will be put into this service as long as their boilers are working. But what I do know is, like, in the scheme of things, the market looks at IMO. This rollout is happening in August, Oct. You know, the prices are gonna change.
When we get to January, you know, people will have a really good feel of where the balance is. Prices will react. Then as we go through 2020, things are happening to, you know, you can call it mitigate the problem and because the market will look ahead and go like, you know, "This is what we now see in the orderbook," or, "What refiners are doing," and things like that. Refiners will have great incentive to do incremental capacity creep on their existing facilities. The problem is, how do you decide to spend $500 million or $1 billion on a project if guys like me are saying, "Well, you know, this could be over in 5 or 10 years, and you're gonna build this coker that's gonna sit there for 50"?
Okay. We've got a few topics to get through, guys. But thank you. If we can all right. Go on, Ole.
It aligns with what you say, which is similar to what we hear from a lot of people who have basic knowledge of the refining complex globally. Are you surprised by the lack of price action in the high- and low-sulfur crudes? Versus sweet?
I am. And one of the big things that happened, you know, on the sweet-sour spread, if you look around, is we have Iranian sanctions. We have a decline in Venezuelan production. We had the socialist government in Alberta, right, cutting heavy crude oil, you know, supplies. And all of these, if you will, you start adding it up. And all of a sudden, you have 2 million barrels a day of high-sulfur crude that's off the market. At the same time, refiners are looking at replacement. So the sweet-sour spread has come in, you know? So that actually has been a big surprise. The other thing that's been a surprise is these spreads grow between the various products as the flat prices come off. So we saw much wider spreads when Brent was at $85 and WTI at $75.
Things just collapse as you're getting to, you know, today, Brent is off $2, you know, and WTI is off $1 earlier. So when you're at, like, $55 you know, $57 and $67, you know, type numbers, these spreads tend to collapse. But if one were to look at the forward curve, you know, especially on Western Canadian Select on the Brent Dubai, on Mars crude, which is a sour US Gulf Coast grade, you already can see the impact. The thing is, no one. You have my numbers. Those are my balances, you know, for, for better or worse.
And people are trying to figure out to what degree those things are correct. Whether we are long 800,000 barrels a day of high-sulfur fuel or 1 million barrels or 300, that stuff trades as barges in the window on the Gulf Coast. I guarantee you, if you were long 100,000 barrels a day on the Gulf Coast, 2 barges a day, the number is gonna get slammed because people are gonna figure out, "What am I gonna do with it?" And so for me to have a big change on just to finish up, I need to drive that 825 to close to zero.
So it leads to that, and assuming you're right, what, when would you expect the price action to kick in either in high- and low-sulfur bunkers or in the high- and low-sulfur crudes? I mean, at some point, the spread should really blow out the deeper divide.
That question, I can answer because we're already seeing it in low-sulfur crudes with record premiums being paid for low-sulfur crudes that are blendable into marine fuels. Because what the traders are saying is, "On crude, I don't need heated storage," right? So they're taking out these. They're parking them in Singapore. And they're sitting there going, "Let me get all this Australian crude that's blendable. I'm going to dump it into the V. I'm gonna hedge it with Dubai." And because that spread, that crack is gonna blow out in January because they already see it in the numbers.
Thank you. Okay. I guess what's interesting is, certainly from where we said, is the law of unintended consequences. So I mean, let's assume we all agree that there's additional refining throughput of 2 million barrels a day. I mean, what's fascinating is the additional refined products that are coming out, whether it be jet fuel or naphtha, etc. So maybe comment on two things. And maybe I'll let you draw your breath. So I'll give this one to Tony: what, how that might impact on product tankers. And then added to that, you know, a little bit expanded on Ola's point: what is likely to happen in terms of price volatility for products themselves and the additional, you know, refined products that are just there, you know, weren't intended to get produced, but they are? Maybe, Tony, if you wanna take that.
It just sounds to me like, you know, people have characterized this chaos, etc., etc. It just seems like it can translate to a lot of price volatility. I think oil traders are gonna make a killing, and we'll do okay on the back of that, more probably more than okay. It's just so confusing, and there's just so many moving parts and so much uncertainty. That's what makes it fascinating. So I can't really be anywhere articulate or precise.
That's good.
But it just smells like a big opportunity for us.
Yeah. And in terms of the oil products that get come out of it then, all of these 2 million barrels, what, where is it likely to go? What's it likely to? Right now, we're gonna have excess gasoline, naphtha.
So, you—I mean, you can see there's a lot of cross-connections going on between the products. But when we think about naphtha, you know, the place to go with that is the Asian petrochemical plant. But then, you know, you'll have this dynamic of naphtha starting to compete with coker. You know, and, and that's really unclear. But if we're looking at a disposition of naphtha, I can get it to a petrochemical plant, or I can upgrade it in a refinery somewhere, you know, into gasoline. But whether it's naphtha or gasoline, it's gotta move somewhere on a clean product tanker. So there it still is a debate on whether IMO is good or bad on the gasoline front.
You know, on the jet fuel side, because a lot of it is being made in Asia and the Chinese demand for jet fuel continues to go up, a lot of it will stay domestically. But, you know, a lot of the other materials will get exported. Like, a good example is Southwest Airlines starting Hawaii service. That just, that's gonna create more demand for Hawaii. It's coming from Asia and things like that. So jet fuel is still a dynamic. I did speak in front of the airlines, you know, because they're all interested in where that price is gonna go and how they're gonna do it. But they may benefit.
Can I take this back to the little product tankers? Okay. Which is that naphtha to the Far East is a spectacular trade for product tankers. It's very long-haul. And it usually is kind of a pricing war between propane and naphtha. And of course, propane, typically, now the trade is the LPG. So that's kind of an interesting little trade-off there. But, you know, whenever I see Gernot kinda getting excited, I think it's probably gonna be about naphtha moving to the Far East when he kinda comes to my office. So that's usually, you know, so think about these things that are gonna generate, you know, pretty long-haul cargo movements based on, you know, just dislocations of supply and demand.
You know, another interesting point is that when a lot of stuff's being produced with the surplus, it still moves. It doesn't sit where it was made. I remember having a conversation a few years back in 2015 with one of the big oil traders. And, you know, we were trying to, I was trying to understand what was going on. And I said, "Look, is it the case that, you know, the tanks are full here and empty over there?" And he said, "No, they're full everywhere, okay? But the cargo still moves. And when it moves, it gets to the destination, and then the ship sits because it can't discharge. But that takes the ship out of the market, and that ship is earning money, you know, on demurrage, right?
So it's almost like a turbocharged replay of what we saw in kinda 2015, 2016, you know, combined with the fact that we've got a very low order book now. And so this is all, you know, the fundamentals are setting this up for kind of a, you know, classic run as opposed to a, you know, a relatively short-term event. So anyway.
Yeah. I mean, you know, on the whole IMO thing, the clouds are clearing because as we're getting closer to the January 1st date, I mean, we know what the scrubber number is gonna be, you know? And you can calculate what its demand is gonna be. You can see every day, each of the refineries the refiners are announcing what they're doing. We had Hellenic and Saras that I mentioned. Cosmo just announced what they're doing. So every day that goes by, there's another piece of information out there that the market is digesting and, you know, putting it into their mind. And that's why we've now seen the premiums for these low-sulfur crudes, you know, start to go up, as was also mentioned, the cycle oil trade, right? Because people say, "Cycle oil, that's a distillate. It could go into the marine market.
You know, let's grab some of that to, to happen." You know, what, what we don't exactly know is, you know, you get to 2020, and we've talked about, "Well, we'll increase crude runs." Well, the other thing that can happen is significant inventory liquidation, right? In this country, we've got 124 million barrels of distillate fuel. You know, that number could go down to 90 in January, right? So you could actually go into the winter on fumes because the marine market has said, "Well, give me that stuff. Don't put it in the domestic distribution system." So inventory liquidation, or what's available in that channel is not exactly clear. But you could kinda see if inventories get liquidated, that just provides you with even more refining margin to run more crude 'cause it's saying, "We're gonna run out.
Can I bring in Gernot at this point? I mean, I'll throw John in the question here as well. But at this stage, it's probably useful maybe to comment on what's happening in the market today. If all this stuff is kinda coming like a tidal wave, what are you seeing in terms of rates activity, etc., traders?
Yeah. I mean, a lot going on in the market. But I think the most notable thing, particularly now this month, is that the time charter market is getting really tight. Time charter gives a charter, an oil major, an oil trader, the option to lock in a fixed rate over a year or two years or whatever's negotiated instead of paying the spot market. And, just, you know, over the past few weeks, the time charter market jumped by $1,000 a day. That's a market that usually is not quite as volatile. It, it moves a bit more slowly. But if you compare where we were at the, you know, sort of in the middle of Q1 to today, time charter rates for MRs have increased by about 15%. And it's just starting to happen now. So sentiment is just, just getting, getting heated up.
The interesting thing is that everything that gives the charter a bit more of a forward delivery is priced even higher. You know, there's a lot of value in forward period optionality for the charter that is actually getting priced at much higher differentials now than it usually would be the case. So a big movement on fixed-rate time charters, which is really driven not so much by owners, operators, but by oil majors and major oil traders. That's all happening at a time when there are already, outside of 2020, some pretty interesting long-haul movements actually happening at the moment. Andrew mentioned that we've seen a lot of jet fuel moving into the West Coast of the United States, particularly from Asia. Middle Eastern exports have been really strong. Some of it going as far as the East Coast of South America.
Middle East exports are really high. Chinese export quotas are all up. So you see a bit of a trend for not just only increase in volumes but also increase in long-haul trading, particularly east to west. And this is all before sort of the 2020 season really starts to happen where kinda most traders are really ready to kinda start moving on that sort of July onwards.
John, you have a question?
Yeah. My question's for Tony. I'm sure you invited Andrew because his presentation kinda exactly lines up with the thesis turbocharging demand, dislocation.
You did, you did before yesterday.
Dislocation, disruption. But the other takeaway was price. I mean, if there's 800,000 barrels a day of too much HSFO and 1.6 million-barrel shortage of low-sulfur. I mean, this is like a Scrubber 101 presentation too. It means, like, any spread that people are using as their base case will be super conservative based on this. So what's your strategy then? Obviously, you haven't pursued the scrubber out yet. What's your strategy for participating in this potential, you know, dislocation? Obviously, if you're making $35,000 a day on MRs, your fuel cost is not as relevant. But it's still relevant when you look at it compared to some of your peers, which have been very aggressive on that front.
So we, you know, our HFO has fluctuated between $700 a ton and like $150 a ton over the last six or seven years. Nobody thinks about that. So I think that when it comes to the price of the fuel we burn, as long as the market's reasonably healthy, it's gonna get priced into the trade, okay? You know, just in the voyage calc, honestly. I mean, I think when the market's weak, you can get really hurt when the price of fuel goes up. But when you're in an even just a healthy market, it doesn't have to be, you know, ripping. That gets priced in. So not overly concerned. Will we be at a competitive disadvantage?
I think that it's clear, at least the way I look at it, that for, you know, VLCCs, Suezmax, Capes, big container ships, etc., etc., maybe even down to kinda 100,000-ton ships, it's a pretty obvious thing to do. On the other hand, when everybody does it, then everybody loses, okay? So I think that, you know, you'll eventually see a whole bunch of scrubber installations on these big ships. And then, you know, that's gonna set the market for that side. So you end up with just a big sunk cost for that segment. I think for MRs, we just think that, you know, you'd have to have very substantial spreads for an extended period of time. So, like, you know, the number that we calculate on is, let's say, $200 per ton spread for three years, okay?
We think that's kind of like the break-even for an MR. Then you have to take into account where MRs trade, how they trade, the availability of fuels. And as somebody told me in Singapore last week, you know, forget about cargo pricing. It's barge pricing that counts, okay? So, you know, what, what's the 3.5 gonna cost you on a barge basis where you need to go? And if you're loading up bunkers, you know, heavily in advance, to kinda get somewhere in back, then if you're typically, our business is draft-constrained. You're shutting out cargo, and therefore, you're reducing your TCE. That way, you know, so, you know, I don't wanna talk down scrubbers too much. But I think we're just not ideologically opposed to them. We're taking a bit of a wait-and-see attitude. We're very skeptical for our size ship. We just don't think that the economics are compelling, so.
If I can ask a follow-up to a little bit different topic. But Gernot just said time charter rates are moving up, gapping up. You showed a slide earlier with asset values moving up. Seems like the window to add more operating leverage, either through owned assets or chartered-in assets, may be closing. And given your real bullish outlook on the market, you're selling ships into that. So how do you kinda view, like, the time frame and your optionality to add more operating leverage before it's too late?
We would like to, but we have to do it the right way. You know, we're, we're you know, we're not able to lay out in detail everything, everything that we're looking at or trying to do or have tried to do. So you're right. It would be great to have a bigger fleet to be buying back. I think the question as to why we've been selling the older ships, the, the main reason is we they were just coming up on dry dock dates, needing ballast water treatment installation. It was gonna be a very significant investment. And we just made the call for a whole bunch of operational and reputational reasons that we wanted to move on from those ships. And we will replace them at some point. But we're also cognizant of leverage and liquidity, access to capital, these other factors.
The reality is, we've got 20 terrific ships. They're all highly fuel-efficient, all trading spot. We've got a lot of leverage to the upside. And honestly, would anybody here buy the stock if they knew that we had 2 more ships? You know, I don't think so. I mean, so, you know, we're solely incentivized to maximize value and, you know, build a business in a way that, you know, is good for shareholders. And, you know, that's what we focus on every day. So when you see us not doing something, there's probably a logical reason for it.
I just wanna make one comment to what you said, about my numbers. Just so you know, the numbers that I presented, they've been out there, if you will, at a variety of investor conferences, at least since September of 2018, if not since March of 2018. So, you know, those are my numbers. That's what I came to the table with. I just because they happen to line up with what, well, what Tony's comments are lining up with my numbers, those are my numbers. They really haven't moved for quite some time. In fact, the market has kinda moved closer to my numbers in a variety of those categories.
So okay. Just to kinda go back, by the way, and talk about, you know, the did we coach Andrew to say the things at play? So, you know, he's obviously expressing a thesis which is very bullish or, you know, for, for scrubber-equipped ships. I think the reason why is that, you know, he thinks it's a significant component in driving the industry back to equilibrium in terms of, you know, supply and demand of the right kind of fuels, right? And we, we just don't think that the economics are gonna be sufficiently long-lived to, to make it interesting, right? If we owned these, we'd be all over scrubbers. We'd be all about scrubbers, so.
I know this may be a premature question. But, you know, in thinking about the future and the supply-demand curve, I mean, obviously, what ruins a market is oversupply. And, you know, looking at that order number that is pretty low, you know, what do you, you know, what do you think could happen that I mean, do you think there's a structural difference today that would prevent, you know, a massive overordering? You know, this bullish thesis comes into view. And how do you, you know, how do you think about, you know, the dynamics there in terms of shipyard capacity, financing, you know, and preventing that from happening again? Or, or maybe it won't.
Nothing will prevent it from happening.
Yeah. Exactly.
Okay. The question is, you know, how long do we have, okay?
How long do we have?
So if the market moves the way we expect it to, you know, there are some constraints, right? There are some capital constraints. But that solves itself pretty quickly at $25,000 a day, to be honest. The yard capacity is down probably 70% from the peak in 2008. The yards themselves have become much more financially disciplined. But it's also important to recognize when you hear about MR ordering, for example, that, you know, there are 2,000 MRs out there, right? It's one third of the world tanker fleet. So and the underlying demand growth is already fairly robust. So you need something like 80 ships delivering a year, to, to just keep up with the, the demand growth trajectory. And we're well run we're running well under that now. So how long would it take to kinda get to a point where we're overbuilding again?
I think it's probably a few years before they really start delivering, because, you know, you might be able to get a ship, one ship, ordered today that can deliver in a little less than 2 years. But if you're ordering a series, you're well out to the 3 years now. So we're very realistic about the fundamentals of our business. But this time, it does honestly. I, you know, this is my fifth cycle. I've been in this business too long, and this does feel like a more traditional setup for an upturn where you're gonna have a significant supply lag.
The final thing I'll say to insult at least, I hope, a few people in the room. Somebody told me that, you know, like, last time around in the, you know, sort of 2014, 2015, a lot of that was fueled with kind of external capital coming in. Somebody said that hedge funds tend not to make the same mistake twice consecutively, okay? So maybe we're safe this time, yeah.
Amish, question?
Yeah. I just had a question on trade war going on right now in the US, about the IMO 2020. I think everybody in this room is, in one way or another, bullish on IMO 2020. So there's some groupthink mentality with respect to IMO 2020. But on the trade war side, you know, China's refining margins, just Asia refining margins are coming down right now. Plastic prices are being impacted by the trade war that's going on. China is, you know, stockpiling crude inventories. So I just maybe your expertise, Andrew, and try to help us understand maybe over the next six months prior to January 1st, 2020, what do you think the impact is on oil trading if the trade war accelerates? Like, we think, actually, it likely will.
Well, you know, as far as the oil market goes and price, the longer the trade war goes on, the more bearish you get on the flat price of oil because the market is gonna think there's gonna be a slowdown in the rate of growth of oil demand. And so, you know, the market is just gonna interpret it negatively on a trade war news alone. Now, that also brings up kind of this interesting dynamic that if you're the Chinese and you've just kind of had it with the U.S. and the trade war, you start going out, and you say, "You know, so I don't care what kind of sanctions you have on Iran. I'm gonna buy all their oil because they're gonna discount another $5 a barrel.
And if you're already sanctioning me, you know, what else are you gonna do after that?" So, you know, you could have this, this flip side if, if both sides are, you know, just mad at each other, that more oil actually comes out on the market because the Iranians, the Chinese say, "Well, you know, we're just not going along with the sanctions anymore. And if you don't like it, we'll, we'll stop buying your, your T-bonds, and we'll start selling it. And then you can deal with higher interest rates." You know, so you could kinda see that side. The, the other side of this is the supply disruptions that are going on in Venezuela, which, you know, sanctions aside, they've committed hara-kiri on their own. They didn't need the US sanctions to destroy their oil industry. So we're losing supply from them.
We're just, you know, one shot across the bow from taking 500,000 barrels a day offline in Libya, right? And then we're always, you know, a few days away from some sabotage in Nigeria. So those type of things are tending to support the market. And if the Iranians continue to support their proxies, and you have just a single missile flying in the Middle East, prices go up because they're worried about some major conflict there. So those are the two things that are really competing for flat price in the oil market. But, you know, no doubt, the market's interpretation of a trade war is bearish.
Any more questions? We'll pass it over to Tony for some closing comments. Joe?
My question, Andrew, is just, you talked a lot about the impact on the product markets. But on oil demand itself, what kind of impact do you expect and how quickly might that unwind?
On the IMO step change?
Yeah. The boost from IMO, how long might that proceed?
So if we said, if the only thing we said was, "How much more crude oil do we have to run in order to make this 1.6 million barrels a day compliant fuel?" the answer is, you need somewhere over 2 million barrels a day of incremental crude to kinda turn it into the fuel that we want. Now, of course, that assumes you got the refining capacity, the desulfurization, the right type of crude, and all that business. So that's sort of at your high end. But you could have a significant amount of destocking, right, 'cause you'll get distillate and anything that's in inventory out of every nook and cranny because we'll become backwardated, and you won't wanna store that.
The next increment that comes out is, you'll start in the interim for a short period of time, you will divert some of this material going to the catcrackers and cokers. I mean, you could do that for a few months. Those industries will draw on inventory themselves. And that'll probably be, you know, I would just have to take a guess, you know, 300,000-400,000 barrels a day. But it would be the combination of things that could kinda make it through. Now, the thing that would be the most interesting is, what if the world simply could not come up with enough compliant fuel, and we just ran out, right?
You know, it's like the gas pump with the brown paper bag saying, "Out of gas." Well, in that case, I would expect emergency action that the UN, the EU, and everyone else say, "You know something? We're gonna do something else. And you'll have this event that will solve the problem because we're not gonna shut down world trade because of IMO in spite of all its good intentions." So, you know, it's, I think that's still a long ways off. But you're looking at a pretty significant increase in crude runs. Now, you know, my number, it was in and of itself in isolation. Other people, you know, you've seen estimates 2-3 million barrels a day or whether it's 1 million barrels a day. But there is this step change in oil demand that the market is expecting.
And that's gonna be reflected in Brent and WTI prices 'cause as was brought up earlier, if people are looking for low-sulfur compliant fuel, they're naturally gonna say, "Give me more WTI and Brent." Oh, and to how long this takes, you know, so as I said, remember, I kinda think of what's happening between now and January 1st of 2020. And the world goes berserk. And the price spreads do their thing. And then it takes another 3-4 years to get it to some other state of equilibrium because at some point, enough vessels put on scrubbers to soak up that high-sulfur fuel oil surplus that's been sitting around or building. And it mitigates the increase in demand for low-sulfur compliant fuel.
Okay. Last comment then, Andrew, from you. What do you wanna leave the audience with?
So, you know, when we look at the first thing I'll say, we are now into the window of things happening in the field. Every day, you're getting more information from the physical oil market that IMO is real. You're starting to see it in price action and logistics and terminal rates and things like that. Now, the number two thing is that, you know, the IMO is a significant disruption in the oil market from the producer to the consumer. There is, you know, a shortfall in compliant fuel. It has to come from somewhere. And we're gonna have a variety of things happening from the refiners to the vessel owners. And if we do run more sweet, more crude, excuse me, to make compliant fuel, by definition, there's gonna be more both clean and dirty products the whole around the world to do something with.
Thanks. Tony, I'll pass it over to you to wrap it up.
Thanks, Paul. I'm always trying to, you know, sift through all the detail and just try to see some elements of truth in things. You know, what I'm really hearing - and I've learned a lot from Andrew, you know, in our discussions yesterday and this morning - is that, you know, this is probably gonna result in more throughput than people anticipate. What's really odd is that you don't hear anybody really talking about that, you know, at a higher level like OPEC, etc., they're trying to you know, trying to get the price of oil up so you think they would.
But anyway, that's one, you know, thing that seems to be coming more clear is that this idea of kind of, you know, dragging blending components away and using them to make low-sulfur fuel oil. It's not as practical maybe as people thought. The other thing is that, you know, I just sense that this is gonna result in a lot of price volatility. And that's always good for our business. And it also not only results in more cargo movement but over longer distances. So anyway, those are, I guess, the two big things I'm thinking out of this. I wanna thank you all for attending. I thought the engagement was fantastic. I learn a huge amount every time we have one of these, and on these kinda topics.
You know, I think as a company, we're really well positioned. But I won't go over that again in detail. I will mention that we are taking the operational preparation very seriously in terms of the switchover, tank cleaning, etc. But I think in terms of diligence, that's something that, I think we, you know, we're sweating the details on that. And this just, you know, for those of us who've been in this industry a while, this, you know, has the feeling of something pretty big. So, you know, I can't be any more analytical than that. But, you know, some people say that, you know, sort of cynicism and skepticism is an essential prerequisite for, you know, a good upturn in this business, right? So that's it.
Awesome. I think there's been plenty of cynicism and skepticism. So we're up for a big bounty. Good. Thanks, everybody, for coming. We'll hang around for questions, afterward. And, appreciate your comments.