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Crude Build Halts Oil Price Recovery

The Real Influence Of IMO 2020

LNG terminal

If ship owners, oil refiners and traders had been hoping for a stay of execution concerning the International Maritime Organisation’s (IMO) impending rule on sulphur limits in bunker fuel, they will have been sadly disappointed October 26.

Rather than accept proposals designed to ease the shift from 3.5% to 0.5% sulphur in marine fuel from January 1, 2020, the IMO instead tightened compliance by adopting a ban on the carriage of non-compliant fuels in ships without exhaust scrubbers.

It means that the huge oil market shake up that is ‘IMO 2020’ is going full steam ahead on schedule, and that compliance – a factor with significant bearing on its impact – will be at the higher end of expectations.

But is a seemingly small regulatory change in an industry far from the public view really such a big deal?

Yes. Various estimates suggest IMO 2020 will involve a transfer in value of over $1 trillion between 2020-25. On the winning side: refiners, low sulphur crude producers, oil-fired power generators and some industrials; on the losing side, freight carriers, high sulphur crude producers and consumers.

The change in specifications is global. Bunker fuel usage is around 5-6 million b/d, roughly 6-7% of the world oil market. Not only that but 0.5% sulphur fuel oil is a new product. Refiners have to reconfigure their kit to produce it, while ship owners will be running it through engines unused to the new specifications.

Preparation…

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