IMO2020

[lealbert]

I was talking to an oil trader last night and he thinks there is a new fuel made from coal dust that could be suitable for these ships. He was not certain at what cost this product could be produced, but if there is a shortage of diesel it might be a viable option.

I asked him what happens to the high sulfur fuel the is being used today by the shipping industry after the new regulations go into effect. He says that fuel will be used for power generation in countries that don't have strict regulation on emissions (he says many Latin America countries could use it). I expect that even countries like Saudi could purchase this fuel for power generation and release more of their oil for export.

Bottom line, i don't think this high sulfur fuel is going to stop being consumed when ships can no longer burn it.

[dan_s]

On December 31, 2018 Raymond James published a special report on the impact of IMO2020. Send me an email (dmsteffens@comcast.net) and I will send you the full report.

Here is the first paragraph.
"With the oil market’s meltdown over the past two months, it might feel like all the worries about
undersupply are in the rearview mirror – but we believe that would be a big misconception.
While the picture for 1H19 remains hazy, we remain of the view that oil prices are on course to
reach cyclical highs in 2020. A major factor behind our forecast of a sizable draw that year in
global petroleum inventories is IMO 2020, the low-sulfur fuel regulations for the global marine
transportation industry. As detailed in our cross-industry report from October, we estimate that
IMO 2020 will effectively "erase" 1.5 million bpd, or 1.5% of global oil supply – making it one of
the most important, and yet still underappreciated, oil market stories for the next few years."

[lealbert]

Thanks Dan. I look forward to seeing the RJ report. At this time I don't find anyone else raising the alarm about IMO 2020.

[dan_s]

Send an email to me at dmsteffens@comcast.net and I will send you the RJ report on IMO2020 regs.

EIA is predicting that IMO 2020 will increase oil prices by $2.50/bbl. Read this: https://www.eia.gov/petroleum/weekly/ar ... _print.php

Cut from the EIA report above: "EIA expects that once implemented, the new IMO fuel specification will widen discounts between light-sweet crude oil and heavy-sour crude oil grades, while also widening the price spreads between high- and low-sulfur petroleum products. In the January STEO forecast, Brent crude oil spot prices increase from an average of $61 per barrel (b) in 2019 to $65/b in 2020, and about $2.50/b of this increase is attributable to higher demand for light-sweet crude oils that are priced off of Brent."

[lealbert]

It seems that everything (Venezuela sanctions, Canada pipeline shortage, IMO 2020) is putting pressure on heavy sour oil supply and diesel production, which leads to an oversupply of light sweet crude and gasoline. I am trying to get my head around how this plays out in the market. i know USA refiners are getting squeezed and diesel prices are likely going much higher, but how does this impact the market for USA Shale oil (mostly light and sweet)?

[dan_s]

I think diesel prices will continue to increase and expect the premium to regular gasoline to soon approach $1.00/gallon. I have already seen the delta to gasoline exceed $0.80/gasoline at some stations in the Houston area.