We at Pyxis believe that our quality vessels, operated safely and well maintained by our managers, lead to attractive chartering arrangements and cost-effective return on capital for the benefit of our shareholders.

Primarily, we address the worldwide market for the marine transportation of refined products, which is driven in turn by demand for transportation fuels, including gasoline, diesel/gas oil, jet/kerosene and naphtha. We believe that fundamental population growth combined with increasing per capita incomes and further industrialization will lead to long-term demand growth globally for transportation fuels. However, the outbreak of the pandemic COVID-19 in early 2020 has negatively affected global economic conditions and contributed to a significant decline in the prices of crude oil and refined petroleum products. The resurgence starting in the fall, 2020 of the pandemic in many parts of the Northern Hemisphere hampered a return in demand for transportation fuels during the winter season. However, according to the EIA (5/11//21), global oil consumption in 2021 is expected to improve 5.8% from the prior year to average 97.7 Mb/d, followed by a further increase of 3.8% to an average of 101.4 Mb/d in 2022.The situation continues to be very fluid and uncertain and an improving outlook will ultimately depend on how quickly and successfully governments roll-out vaccines and ease lockdowns. Gradual global economic recovery has been supported by record setting monetary and fiscal stimulus programs of leading governments and central banks which were recently estimated to be over $21 trillion. The vessel supply picture continues to look very positive with low new ordering and prospect for increased vessel demolition. These positive expectations should lead to a recovery in the product tanker sector starting in the fall, 2021 but significant volatility could occur in the interim.

The United States, Europe, China, India and Middle East are the largest exporters of refined products, accounting for over half of total exports. Refining capacity, domestic demand and worldwide arbitrage opportunities can influence the movements within these regions. In the past, global shifts in refining capacity and the increase in U.S. crude oil production, led by the rapid expansion of shale-based oil, have been positives for demand of product tankers. According to a leading industry source, since 2010 U.S. exports of refined products have grown to 5.1Mb/d by 2019, representing a Compound Annual Growth Rate (CAGR) of 10.6%. However, the effects of the pandemic since last spring have depressed demand and help reduce commodity prices. U.S. crude oil production has declined from a record 12.2Mb/d average in 2019 to 11.3Mb/d in 2020. The EIA reported that U.S. oil production declined 12.2% to 11.2Mb/d in March, 2021, vs the same month in 2020, but production is expected to increase slightly thru 2022. In addition to meeting its growing internal needs, China has become a sizeable exporter of refined products, and according to China National Petroleum Company, refining capacity should reach 18 Mb/d by year end 2021 and government approved export quotas should hit 54.7 million tons, a 31.7% increase YOY. Changes in refinery locations have also led to further ton-mile demand for product tankers. The emergence of export-oriented, highly efficient mega-refineries located near the well-head, e.g., the Middle East, and the reduction of OECD (namely in Europe, Japan and Australia) refining capacity are examples of factors that influence locations of refineries. Earlier this year, Drewry estimated that nearly 5.4 Mb/d of new capacity is scheduled to come on line between 2021-2025, most of it not in the OECD. The IEA recently reported that 1.7Mb/d of refining capacity had been announced for closure, principally within the OECD, which should result in greater importing of refined products into these mature large markets. Non-OECD refineries accounted for over 55.5% of global capacity in 2020. Overall, seaborne trade in products has grown at a CAGR of 2.8% between 2010 and 2019, rising to 1,036 million tons, while ton mile demand over the same period had a CAGR of 2.8%. Note, 2020 is considered an outlier because of the impact of Covid-19. Seaborne trade of products has been highly correlated with historical global GDP growth, which during the same 10 year period averaged 3.2%, according to a leading industry research firm. In April, 2021, the IMF updated its global GDP forecast for 2021 for growth to a robust 6% and a further increase of 4.4% in 2022. U.S. GDP growth was estimated to improve 6.4% in 2021 and China to rebound 8.4%. India is expected to see the greatest increase in GDP growth for 2021 at 12.5%, albeit the recent impact of the virus may soften this growth rate.

Product tankers are differentiated by their coated cargo tanks, predominately epoxy-based paint, which minimize any corrosion from refined petroleum products and facilitate the rapid cleaning of cargo holds. Based on carrying capacity, the worldwide product tanker fleet ranges from small tankers under 10,000 deadweight tons (or dwt) carrying capacity to 120,000 dwt. A main group of vessels transporting the majority of cargoes consists of over 2,957 product tankers which range from 10,000 to 80,000+ dwt and aggregate over 160.7 million dwt as of February 28, 2021. Our area of focus, the Medium Range (or MR2) category, typically 40,000-55,000 dwt, consists of 1,585 tankers, representing 47.4% of total product tanker carrying capacity. MRs are considered the workhorse and usually operate in the Atlantic and Pacific basins. Customers include major integrated and national oil companies and international commodity trading firms. The growth in the supply of product tankers is primarily related to new build orders, usually placed at Asian shipyards, and demolition of older tonnage.

The placement of orders for new builds is primarily a function of a shipowner's outlook for demand for such vessels (i.e., future charter rates), construction availability at the yard, age of the existing fleet as well as cost and availability of funding. Product tankers have an expected operating life of 25 years, but certain major charterers have lower age restrictions. A leading industry consultant estimated that MR2 orderbook was 6.3% (100 vessels) of the worldwide fleet as of February 28, 2021 and that only 41 MR2 ordered during 2020. It also estimated 6.9% (or 110) of MR2s were 20 years or older. Product tanker demolition has not been significant over the last couple of years. However, new restrictive and ever-expanding environmental regulations and the current depressed chartering environment should increase scrapping in the near term. We estimate that fleet annual growth for 2021 and 2022, net of vessel scrapping and delays in MR2 newbuild deliveries, to be approximately 2%.

Tanker operations and vessels are significantly regulated by international conventions, such as SOLAS and MARPOL, class requirements, various governmental health, safety and environmental laws and regulations, including OPA and CERLA, IMO regulations and by other jurisdictions. The independent classification societies certify that a vessel has been built and maintained in accordance with established rules and regulations, including periodic inspections and surveys of the vessel. In addition, many charterers have established certain standards to employ vessels carrying refined products guaranteed by strict vetting processes. Consequently, quality vessels and flawless operations are paramount within the product tanker industry.