Wednesday, August 21, 2019

Shipping/Trucking: "Diesel prices will spike due to IMO 2020: Fitch"

The best short discussion of the refining end of the opportunity in the low-sulphur rules that you are likely to find.
From FreightWaves:
In anticipating the price impact on diesel prices from the launch of IMO 2020 on January 1 – with any impacts expected to start before that – most forecasters have been fairly moderate in their outlook, with some exceptions. 

But Fitch Solutions, a unit of Fitch Group, recently came out with its forecast. Prominent in the title is the ‘S’ word – spike.

“Diesel: Tighter Shipping Rules to Lead Large Price Spike in 2020” is the title of the report.
The report as a whole sees the oil market in the next few years as having adequate diesel capacity in general. But it’s the short-term that is of concern to the trucking and transport sector and Fitch’s outlook is stark.

“Fuel switching due to IMO 2020 will drive a large and sudden shift in demand for diesel in shipping, and a significant mismatch between supply and demand, and in turn price volatility appears inevitable during its early stages,” the report said.

There are two paths for diesel to migrate from the current demand pool into meeting demand from the marine sector, which is facing a mandate from the International Maritime Organization to reduce the sulfur content of marine fuel to 0.5 percent sulfur from the current 3.5 percent sulfur cap.

One way is to use an existing product called marine gasoil (MGO), which is a diesel product. The other is to consume a new type of product known as very low sulfur fuel oil (VLSFO). But despite its name, VLSFO will contain a significant amount of diesel molecules, produced using  an intermediate product called vacuum gasoil (VGO). VGO is now used to make either finished diesel or gasoline. There are other solutions, such as scrubbers (which allow ships to continue using high sulfur fuel oil) or liquified natural gas (LNG). But it is the MGO vs.VLSFO vs. existing diesel give-and-take that will be key going forward.

IMO 2020 has been described as the most significant environmental regulation ever implemented in the oil industry. It is very different from other new regulations in one key respect – the solution to meeting the new rule will to some degree come from taking products from one stream of products coming from a refinery – the middle distillates – and using them to displace another stream, the fuel oil that is known sometimes as “the bottom of the barrel.” That shift is forecast to be anywhere from 2 million to 2.5 million barrels/day (b/d), a significant amount on a base of about 35 million to 36 million b/d of distillate consumption, including diesel...

Out of our dozens of links on IMO 2020 a few that may be of interest:
August 6
Shipping/Refining: "Is A Diesel Crunch Coming?"
July 12
Shipping: First Signs of 2020 Low-Sulpher Rules Starting to Rock the Oil Market
Have I mentioned the IMO 2020.... oh who am I kidding, fascination became idée fixe some time ago.
July 8 
Shipping: 2020 Low Sulphur Rules Less Than 6-Months Away - There's A Trade For That

And previously on this aspect of the big change:
Rich Rewards Await Top Oil Refiners as Ships Make Low Sulphur Switch Fuel
Top Norwegian Oil Analyst Quitting DNB to Pursue 2020 Low Sulphur Fuel Rule Riches 
Shipping: The New Low Sulpher Rules Will Have A Huge Impact On the Oil Business (shipping and world economy too)
Oil/Shipping: "Where will all the residual fuel go after ships barred from using it?"
Shipping’s 2020 Low Sulphur Fuel Regulation to Hit Airlines
"Shipping: 2020 Low Sulfur Fuel Requirements Will Disrupt Oil/Refined Markets Up to Five Years".  Shipping: First Signs of 2020 Low-Sulpher Rules Starting to Rock the Oil Market