Under the Blade - The Far-Reaching Impacts of Low-Sulfur Bunker Fuels On Demand, Prices and Refining

A new international rule slashing allowable sulfur content in the marine fuel or “bunker” market will have profound effects on global demand for high sulfur fuel oil and low-sulfur middle distillates—and with that, major impacts on the price of those products, the demand for various types of crude, and the need for refinery upgrades. What we have in the making here is a refining-sector shake-up that will extend well into the 2020s. Today we begin a series on the rippling effects of the International Maritime Organization’s (IMO) mandate that, starting in January 2020, all vessels involved in international trade use marine fuel with sulfur content of 0.5% or less.

This blog series is based on elements of a just-published report by our friends at Turner Mason & Co. that examines a number of crude oil- and refined products-related topics, including the impact of the IMO’s new sulfur rule on high-sulfur fuel oil (HSFO) and low-sulfur marine distillate demand and prices, on future demand for various grades of crude (heavy vs. light, sour vs. sweet etc.), and on the refining sector more generally.

The worldwide shipping industry is a leading consumer of petroleum products—tankers, dry bulkers and container ships now consume just over half of the world’s residual-based heavy fuel oil—so it’s not surprising that rules governing marine fuel standards have been a frequent topic in the RBN blogosphere. Most recently, in How Am I Supposed to Live Without You, we discussed the IMO’s October 2016 decision to reduce from 3.5% to 0.5% the allowable sulfur content in bunker used by most of the ships that ply international waters. (The new rule is planned to kick in January 1, 2020.) As we said then, an even tougher sulfur-content standard (a 0.1% cap on sulfur) already is in place for vessels that operate within the IMO’s “Sulphur Emission Control Areas” (SECAs, or sometimes ECAs), which include Europe’s Baltic and North seas and areas within 200 nautical miles of the U.S. and Canadian coasts.

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