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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Refiners Prepare To Profit From Dramatic Oil Product Switch


“The 2020 IMO marine regulation change is one of the most dramatic ever seen to product specifications, although the shipping and refining industries have had several years notice,” the International Energy Agency (IEA) said in its annual Oil 2019 report last week.

These regulations by the International Maritime Organization (IMO) as of January 1, 2020, limit the sulfur content in marine fuel to 0.5 percent from 3.5 percent currently.

As 2020 draws nearer, oil refiners around the world, from Europe to the United States to Asia, are preparing to capture as high refinery margins for distillates like diesel and marine gasoil as they can get.

That’s why some refiners have changed their maintenance schedules for 2019, with planned refinery stoppages heavily geared toward the spring in the first half of the year, leaving more operating refining capacity for the fall of 2019, when the 2020 ship fuel change will be imminent.

In Europe, refiners have so far planned to place under maintenance some 520,000 bpd of crude oil refining capacity in September-November this year, compared to 1.3 million bpd capacity halted in the fall of 2018, according to data Bloomberg has compiled.

For example, Italian refiner Saras, whose 300,000-bpd Sarroch refinery in Sardinia accounts for some 17 percent of Italy’s total refining capacity, said in its 2019 outlook earlier this month that its maintenance cycle this year is concentrated in Q1 “in order to be ready to capture better market opportunities arising from IMO.”  

According to the refiner, the first half of this year will be penalized by maintenance and weak gasoline margins, while the second half will benefit from the “IMO effect.” Related: “Perfect Storm” Drives Oil Prices Higher

In the United States, refiners plan maintenance on around 500,000 bpd of crude processing capacity in the fall of this year, which would be nearly 50 percent lower than the refining capacity under maintenance last fall, the Bloomberg data shows. On the other hand, at least nine refiners are doing turnarounds in the first half of this year, according to the data.

PBF Energy, for example, is moving its turnaround schedule so that it can complete 90 percent of turnarounds by the end of Q2, “in order to strategically position the company for the later part of 2019,” PBF Energy president Matt Lucey said on the Q4 earnings call last month.

Refiners and analysts expect the new sulfur-content rules for ship fuels to raise diesel demand and refining margins, while weakening the high sulfur fuel oil (HSFO) demand and market. Ships which will have installed the so-called scrubbers removing the exhaust can still use HSFO, but their number is still limited.

In addition, complex refineries able to upgrade residual oils into lower-sulfur and more valuable products will benefit from the IMO ship fuel specification changes. The United States is set to be one of the main beneficiaries.  

“Much of U.S. refining capacity, especially on the U.S. Gulf Coast, has downstream units that upgrade residual oils into more valuable and lower-sulfur products,” the EIA said in an analysis on the implications of the IMO regulations on the crude oil and petroleum products markets.

The U.S. is set to export more diesel and low-sulfur residual fuel due to the increased demand for low-sulfur fuels, according to the EIA. Related: Oilfield Services Might Not Fully Recover Till 2025

“And we still believe there will be significant demand increases as a result of IMO and strong diesel cracks as a result of that as you approach that January 2020 date,” Gary K. Simmons, Valero Energy’s SVP of Supply, International Operations & Systems Optimization, said on the Q4 earnings call in February.

Another Valero executive, chief operating officer Lane Riggs, believes that U.S. oil producers will also benefit from the IMO rules due to higher export demand for lighter sweeter crudes, because less complex refineries in Europe are expected to opt to process those crudes in order to avoid high-sulfur content in their refined products.

“The distillate crack is going to drive the European refiners to run more, and they are going to try and do it in the most economic way, which means they have to run lighter, sweeter crude,” Argus Media quoted Riggs as saying at a refining conference earlier this month.


The overall global drop in fuel oil demand and the rise of petrochemicals over the next few years will benefit the U.S. oil producers whose typical crude products are lighter, the IEA said in its report last week.  

“As a result, the United States will be in prime position as a supplier of light types of crude oil that are in growing demand. Shale oil will also help meet the new IMO requirements and provide the quantities of naphtha required for the petrochemicals industry,” the agency said.

Torbjörn Törnqvist, CEO at trading house Gunvor, said in October last year that the new rules would surely create an initial confusion, but in the end the big overall winner from IMO will be the United States.   

By Tsvetana Paraskova for Oilprice.com

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Leave a comment
  • Philip Verleger on March 19 2019 said:
    Good comment.
    The success, though assumes, that the President of the United Sates is willing to tolerate an increase in gasoline and diesel prices. Since 2020 is an election year he may decide that increases are undesirable, especially since his "base" is really vulnerable.
    Should he decide that he wants to keep prices down he has the tools. Many years ago I was the keeper of the powers as an official at the US Treasury. All he needs to do is declare an emergency and block exports of crude, gasoline and diesel.
    Game over.
    US gasoline prices will remain low. The rest of the world will be in chaos. The current occupant of the White House could care less.

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