• 3 minutes Nucelar Deal Is Dead? Iran Distances Itself Further From ND, Alarming Russia And France
  • 5 minutes Don Jr. Tweets name Ukraine Whistleblower, Eric Ciaramella. Worked for CIA during Obama Administration, Hold over to Trump National Security Counsel under Gen McCallister, more . . . .
  • 9 minutes Shale pioneer Chesepeak will file bankruptcy soon. FINALLY ! The consolidation begins
  • 12 minutes China's Blueprint For Global Power
  • 10 hours EU has already lost the Trump vs. EU Trade War
  • 2 days Science: Only correct if it fits the popular narrative
  • 3 hours Impeachment S**te
  • 2 days Crazy Stories From Round The World
  • 13 hours Pope Proposes New Sin: Thou Shalt Not Destroy The Harmony Of The Environment
  • 17 hours Everything You Need To Know About Trump
  • 10 hours 55.00 WTI
  • 12 hours Water, Trump, and Israel’s National Security
  • 1 day IEA predicts oil demand will grow annually at 1 million barrels a day for the next 5 years
  • 2 days Iran Burning: Shock Gas Price Hike Triggers Violent Protests After Subsidy Cuts
  • 9 hours Visualizing Pennsylvania Oil & Gas Production (Through September 2019)
  • 1 hour Article: Did Exxon only make $39 Million onshore U.S. last quarter ?
  • 2 days Atty General Barr likely subpeona so called whistleblower and "leaker" Eric Ciaramella
  • 2 days ‘If it saves a life’: Power cut to 1.5 million Californians
  • 17 hours Last I Checked
Alt Text

This European Nation Is Planning A Complete Offshore Oil Ban

Under pressure from environmentalists, Ireland…

Alt Text

The Top 5 Ways We Use Oil & Gas

Oil & gas products are…

Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

More Info

Premium Content

The Regulations That Could Push Oil Up To $90

International regulations on the fuels used in shipping could tighten the oil market and push prices up to $90 per barrel in the next two years.

The International Maritime Organization (IMO) has new rules coming into effect at the start of 2020 requiring shipowners to dramatically lower the concentration of sulfur used in their fuels.

Ships plying the world’s oceans tend to use heavy fuel oil, a bottom-of-the-barrel fuel that is especially dirty. The IMO regulations are targeting this fuel because of its high sulfur content. Current rules allow sulfur concentrations of 3.5 percent, but by 2020 ships must slash that to just 0.5 percent. “Effectively, bunker fuel is the last refuge for sulphur, which has been driven out of most other oil products,” the IEA wrote earlier this year in its Oil 2018 report.

Shipowners have several options to achieve this goal, and there probably won’t be a single approach. They could install scrubbers to remove sulfur from the fuel, switch to low-sulfur fuels, or switch to LNG. Scrubbers are thought to be costly, although some shipowners see the payback period as worth it. LNG is also an expensive route.

But a lot of shipowners will switch over to lower-sulfur fuels such as gasoil, a distillate similar to diesel. The IEA says that by 2020, demand for gasoil will shoot up to 1.74 million barrels per day (mb/d), an increase of over 1 mb/d relative to 2018. That will displace the heavy fuel oil that is currently widespread. The IEA says that high-sulfur fuel oil demand will crater from 3.2 mb/d in 2019 to just 1.3 mb/d in 2020. Related: China Looks To Capitalize On Cheap Iranian Oil

The switchover will have enormous ramifications for the oil market. The shipping industry represents about 5 percent of the global oil market, using about 5 million barrels of oil per day. Swapping out one form of oil for others will have ripple effects across the refining industry, awarding some and dealing losses to others.

Refiners processing middle distillates – diesel and gasoil – will see a windfall. Meanwhile, refiners that churn out heavy fuel oil will be left with surplus product on their hands.

More specifically, complex refineries can use different types of crude to produce gasoil, often without being stuck with heavy fuel oil as a byproduct. On the other hand, smaller more simple refineries are unable to do that with ease, and “some simple refineries may be forced to close or to upgrade,” according to the IEA.

“We foresee a scramble for middle distillates that will drive crack spreads higher and drag oil prices with it,” Morgan Stanley analysts said in a note.

The investment bank said that Brent crude prices could jump to $90 per barrel, aided by the IMO regulations and the rush to secure compliant fuel. “The last period of severe middle distillate tightness occurred in late-2007/early-2008 and arguably was the critical factor that drove up Brent prices in that period,” Morgan Stanley wrote. Related: $4 Gasoline Could Cripple The U.S. Economy

Already, stocks of middle distillates have declined below the five-year average in Europe, the U.S. and Asia. “The additional gasoil needed in 2020 is likely to trigger a spike in diesel prices. In our forecast, we assume an increase of 20 percent to 30 percent in that year,” the IEA said.

The intriguing conclusion from this scenario is that U.S. shale can’t be the solution. The flood of oil coming from the Permian basin is light and sweet, which tends to be transformed into gasoline, and is not suited for the production of middle distillates. Medium and heavy blends are more preferable for the distillates needed for maritime fuels, but those barrels are being held off of the market right now by the OPEC cuts.

“We expect the crude oil market to remain under-supplied and inventories to continue to draw,” the bank said. “This will likely underpin prices.”

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage



Leave a comment
  • Greg on May 23 2018 said:
    "push prices up to $90 per barrel in the next two years."

    You're really going out on a limb with that one - try the next two months

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play