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Quantifying The IMO 2020 Shock

Tanker

The International Maritime Organization’s (IMO) decision to lower the Sulphur cap of marine fuel across the globe will be one of those few landmark moments which trigger a whole set of smaller trends, reshaping the oil market so as to make it leaner and more efficient. The IMO 2020 transformation will bring confusion to the refiners’ books – sophisticated refiners will seize the opportunity to buy cheaper sour crudes, whilst less sophisticated sites will see their feedstock bills rise in the tumultuous years of 2020-2021. In the upcoming weeks and months, we will be looking at how IMO 2020 influences oil markets as the implementation date draws nearer.

The last time IMO lowered the marine fuel Sulphur cap was in 2012, dropping it from 4.5 percent to 3.5 percent. Now the 2020 decrease is substantially more marked, a sevenfold drawdown to 0.5 percent. Such an abrupt move should lead to a manifest disjunction between high-sulphur and low-sulphur streams, which is exactly what most of us have predicted – yet one might even say that so far it was the opposite that came around. This lack of market clarity amid a plethora of signals obfuscating the true direction in which the shipping industry is headed will cast a long shadow over the oil industry, raising the risk that the first months of 2020 will be a rough ride for everyone involved.

Point #1: Pricing Has Gone Awry Due to the US Sanctions

Before we dwell into the peculiarities of IMO…




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