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American refiners are preparing for a busy overhaul season in the second quarter of the year as the entry into effect of the new International Maritime Organization’s emission rules approaches.
Reuters cites data from the Energy Information Administration that total U.S. production of refined production has fallen 8.5 percent since the start of the year, suggesting it has yet to fall further. The aim is to avoid the need for maintenance closures ahead of winter this year.
The new IMO emission rules cap sulfur emissions from bunkering fuel at 0.5 percent, which is a substantial reduction on the current 3.5-percent cap. As a result, refiners have raced to prepare for the demand for new, lower-sulfur fuels.
Many see the upcoming changes as the most important to hit the refining industry in quite a while. Last month, the International Energy Agency said in its annual Oil 2019 report, “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.”
In the immediate term, this spells even higher gasoline and diesel prices for U.S. drivers, adding to a 26-percent increase in gasoline prices at the pump since the start of 2019.
“They will push (winter) turnarounds later into 2020 to take advantage of that margin bump from the switch to IMO 2020,” an associate at IHS Markit told Reuters, commenting on refiners’ plans to move maintenance and overhauls to the second quarter of the year.
Reuters notes that usually, the second quarter is the time when refiners increase their output of gasoline and diesel in anticipation of peak demand season during the summer. This year, however, according to IHS Markit’s Susan Bell, as much as 1 million bpd in refining capacity could be shut in for maintenance. This will certainly push prices even higher.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.