Raymond James' latest update of their crude oil price forecasts is primarily the result of their view that IMO 2020 will have a significant impact on global oil supply & demand.
The International Maritime Organization (IMO) has mandated, effective January 1, 2020, that all ships must switch from burning fuel oil containing up to 3.5% sulfur content to fuel with no more than 0.5% sulfur. Shippers can comply by burning either low-sulfur diesel or distillate, but they can also use a blended fuel oil mix of high- and low-sulfur oil.
IMO 2020 is getting a lot of attention because there are forecasts that the world lacks sufficient distillate production capacity to meet the new demand without impacting the fuel’s availability for the rest of the global transportation industry. There will also be a serious drag on the refining industry from the lack of a market for high-sulfur oil, such that global crude oil prices for the oil that will be most in demand will soar and consumer prices will jump as shipping transportation costs escalate.
Like most "FEARs", the impact is probably being over-blown by most Wall Street Gang, but it definitely will tighten and already very tight global oil market. Hence, Raymond James & I agree that crude oil prices must go higher to lower demand and accelerate development of new oil supplies.
Like it or not, this world runs on oil based fuels. A small shortage can cause a big increase in fuel prices.
RJ's increased oil price forecast
RJ's increased oil price forecast
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group