New regulations to curb\u00a0pollution\u00a0from the world\u2019s shipping fleet could lift crude prices by $4 a barrel when the measures come into effect in 2020, according to a Bloomberg survey of 13 oil industry analysts.<\/p>\n
That\u2019s because the changes from the International Maritime Organization, a United Nations agency, are likely to stoke refiners\u2019 demand for lower-sulfur crude while prompting some plants to run as hard as possible to maximize profits.<\/p>\n
A similar effect is expected in the crude markets. Banks including\u00a0Societe Generale SA\u00a0and\u00a0Morgan Stanley\u00a0have said the regulations will likely lift crude benchmarks Brent and West Texas Intermediate, which have a relatively low sulfur content. Brent\u2019s premium to higher-sulfur Dubai crude, the Middle East benchmark, has already swelled to more than $4 a barrel in 2020.<\/p>\n
Bloomberg asked analysts to estimate the likely price effects of the regulatory change. Crude prices are forecast to rise by $4 a barrel in 2020 due to the IMO rules specifically, according to the median estimate of 13 responses that ranged from a $2 drop to a $20 increase per barrel.<\/p>\n
\u201cOf our $90 a barrel Brent price forecast by early 2020, we\u2019d argue that $5-$10 a barrel will come from IMO 2020,\u201d said Morgan Stanley analyst Martijn Rats. The shift in demand to less-polluting oil products will mean that \u201cwithout investing in more upgrading units, refiners will simply need to process more crude,\u201d he said.<\/p>\n
By 2020, global crude oil demand is set to rise by 2 percent to 87.7 million barrels a day, according to a forecast from the Paris-based International Energy Agency in March. If crude prices surge by $4 a barrel due to the IMO rules, that would amount to an increase of about $128 billion in the world\u2019s oil bill by 2020, Bloomberg calculations show. Brent crude, the global benchmark, is now trading near $77.50 a barrel.<\/p>\n
While the majority of those surveyed agreed the rules will probably have a bullish effect on crude, some were more reticent. That\u2019s because ships have the option of installing so-called scrubbers allowing them to keep burning high-sulfur fuels while limiting emissions of the pollutant.<\/p>\n
\u201cMore and more ships will install scrubbers and therefore reduce the demand for extra barrels,\u201d said HSH Nordbank AG analyst Jan Edelmann, who saw no impact on crude prices from the regulations. \u201cWe believe that there is sufficient light-sweet crude available from shale to meet extra demand from IMO 2020.\u201d<\/p>\n
Companies that make scrubbers, including Wartsila Oyj and Alfa Laval AB, reported\u00a0bumper orders\u00a0in their most recent earnings. However, the vast majority of the world\u2019s commercial fleet — some 93,000 vessels — will not have installed scrubbers, which can cost millions of dollars, by 2020.<\/p>\n
Also see: Maersk Sees Fuel Bill Soaring by $2 Billion From 2020 Rules<\/p>\n
The IMO\u2019s regulations are likely to ripple through industries that purchase fuel, such as\u00a0airlines\u00a0and power producers. Because of this broad reach, some analysts contacted by Bloomberg said they couldn\u2019t yet forecast crude prices for 2020 or the effect of the IMO rule change specifically.<\/p>\n
The brunt of the regulatory shift is likely to be felt in refined-product markets, as shippers abandon high-sulfur fuel oil in favor of cleaner alternatives, like gasoil or diesel-like fuel that can be blended into IMO-compliant ship propellant. Benchmark gasoil prices in Europe are set to rise by about $17 a barrel by 2020, according to the median estimate from nine analysts who provided figures on the fuel.<\/p>\n
The strength in oil product prices may help to lift crude, too. Nine of 13 respondents said the IMO regulations will be positive for refining margins. Rising profits would encourage refineries to boost crude purchases, potentially lifting the feedstock\u2019s price.<\/p>\n
\u201cWe believe the extraordinary strength in distillate cracks will cause refiners to run as hard as they can,\u201d Societe Generale SA analysts including Mark Keenan wrote in a report earlier this month. \u201cThis very strong crude demand will add $5 to sweet crude prices.\u201d<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"
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