• 4 minutes THE GREAT OIL PRICE PREDICTION CHALLENGE OF 2018
  • 9 minutes Time For Reaction: Trump Presses OPEC to Reduce Prices as Crude Trades Near $80
  • 15 minutes Nothing new in Middle East? Iran Puts On 'Show Of Strength' Military Exercise In Gulf
  • 4 mins Global Hunger Continues to Grow Driven By Climate Change
  • 3 hours So oil touched $80! (WTI break $71 twice). What does the future hold?
  • 21 mins Why Are the Maldives Still above Sea Level?
  • 6 hours Toyota Agreed To Add Android Auto To Its Vehicles
  • 20 hours Transition Time: Volkswagen Announces "Electric for All" Campaign
  • 12 hours Freedom Of Internet: Google Plans Censored Version Of Search Engine In China!
  • 1 day So about that psychological oil price ceiling of $80 ... Trump's Twitter sledgehammer is right on cue, again
  • 21 hours Robots Roam the Seafloor Looking for Mineral Resources
  • 8 hours China Tariff Threatens U.S. LNG Boom
  • 1 day A Buffett-type Solution and Canada's Problem
  • 19 hours Impeachment and stock market
  • 8 hours Praise for Alberta
  • 9 mins Jan's Electric bike replaces electric cars
  • 21 hours Permian already crested the productivity bell curve - downward now to Tier 2 geological locations
Alt Text

India Cuts Iranian Oil Imports As U.S. Sanctions Loom

India, Iran’s second largest oil…

Alt Text

The Biggest Risk In Today’s Oil Markets

The oil market is tightening…

Alt Text

Why Peak Oil Demand Doesn’t Matter

A new report predicts that…

Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

Trending Discussions

The Regulations That Could Push Oil Up To $90

Shale oil rig

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:




Back to homepage

Trending Discussions


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