Under the Blade - Why New Rules on Low-Sulfur Bunker Fuels Will Boost Diesel Margins

New International Maritime Organization rules slashing allowable sulfur content in bunker fuels come January 2020 are expected to be a boon to complex refineries with coking units that can break residual high-sulfur fuel oil (HSFO) into low-sulfur middle distillates and other high-value products. The IMO rules also are expected to undermine the already shaky economics of many simpler refineries that don’t have cokers and are therefore left with a lot of residual HSFO. Today we conclude our blog series on the far-reaching effects of the new cap on bunker fuel sulfur content with a look at how the IMO rules will create winners and losers among refineries, and improve diesel refining margins.

This blog series is based on elements of a recently 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 (planned effective date: January 1, 2020) on 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.

A few months back, 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 fuels used by most of the world’s 50,000-plus merchant ships. 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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