In this episode of Capital Link’s Trending News Podcast, Mr. Robert Bugbee, President & Director of Scorpio Tankers (NYSE:STNG) and Mr. James Doyle, Head of Corporate Development & IR discussed how the potential reopening of the Strait of Hormuz is about to affect an already strengthening market.

Evidently, the closure of the Strait has dominated shipping headlines in the past few months, but Mr. Doyle believes the strongest case for product tankers extends well beyond the latest geopolitical crisis.

After all, before disruptions intensified, MR earnings were reaching $30,000 per day and LR2 returns near $40,000.

To watch the full discussion, please visit the following link:

SCORPIO TANKERS – Positioned to perform across all market scenarios

A Mismatch of Refining Capacity & Consumption Centers

For STNG, the bigger story is not what happens in the Gulf over the next few months, but how the refining system has changed over the last decade worldwide. Refinery closures in Europe, Japan, Australia and parts of the United States have become more dependent on long-haul product movements from large export hubs in the Middle East, India and Asia.

At the same time, "there is steady demand in those regions. It has not declined as much as reports five years ago, two years ago predicted," Mr. Doyle noted, indicating that the market is now dictated by ton-miles, not outright fuel consumption growth.

Trade Patterns Continue to Evolve

Mr. Doyle also suggested some trade pattern changes created during the disruptions may prove permanent. He actually pointed to shipping traffic through the Red Sea as an example.

While yes, attacks near Bab el-Mandeb forced vessels onto longer routes around the Cape of Good Hope, cargo volumes did not return after security conditions improved.

"When they stopped attacking ships, volumes never recovered. They’re still 30-40% of the levels they were before," he divulged.

Inventory Depletion and Restocking: Supportive but Not Linear

A key near-term variable is the global inventory cycle. Scorpio noted that prolonged disruption has significantly drawn down global product inventories, potentially setting up a multi-year restocking phase.

For product tankers, restocking process is constrained, as refinery capacity is mostly fixed in the short term and there is very little that can be done to quickly expand output.

For crude tankers, restocking is more layered, combining inventory rebuilding with rising supply from growth regions such as Guyana, Brazil, West Africa, Venezuela and the U.S., which can flow into the system more flexibly.

Balance Sheet Transformation

Scorpio Tankers’ financial position has seen some major shifts over the past several years. The company has spent these years aggressively deleveraging and renewing its fleet. Its net debt stood at $2.9 billion at the end of 2021. By May 2026, it had moved into a net cash position, with gross debt of $932 million and cash exceeding $1 billion.

Mr. Bugbee, noted that the balance sheet has strengthened even further since the company’s latest reported figures, helped by vessel sales and strong spot-market earnings. He added that the stronger balance sheet is reducing financing costs as well as debt repayment obligations.

Fleet Renewal Continues

The company has also continued selling older vessels at historically attractive prices and adding modern tonnage. Scorpio currently has ten newbuildings scheduled for delivery through 2029 and Mr. Bugbee sees opportunities to expand the company’s presence in the VLCC sector.

Even in that area, however, Mr. Bugbee sees reasons for caution. The VLCC orderbook now exceeds 30% of the existing fleet, a level he believes could eventually pressure vessel values.

"I think that people who are expecting a big positive event in the VLCCs over the next few years may be sadly surprised," he commented. For now, the company appears content to let cash accumulate and maintain its exposure to the spot market.

Disclosure: Capital Link works with Scorpio Tankers (STNG). This content is for informational purposes only and not intended to be investing advice. We would like to highlight that this is not an article with Capital Link’s editorial. It reflects only comments made by management during the company presentation

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.