Oil traders wait to assess impact of IMO regulations - Kemp

LONDON: If oil traders and consumers are worried about the impact of new maritime fuel regulations from the start of next year, they have not yet started to mark up prices for low-sulphur middle distillate fuels.

Under new rules agreed by the International Maritime Organization (IMO), ships will be forced to switch to using low-sulphur fuels rather than high-sulphur residual fuel oil, or fit scrubbers to remove sulphur dioxide emissions.

Refiners have been gearing up to increase the production of IMO-compliant shipping fuels, and many ship owners have installed or plan to fit scrubber units to enable them to continue using cheaper residual fuel oil.

There is considerable uncertainty about exactly how vessel owners will comply with the new regulations and how much extra low-sulphur fuel the refiners will manage to produce.

But the forthcoming regulations are expected to increase consumption of middle distillates and cause that segment of the oil market to tighten significantly.

Ships will be competing for the same low-sulphur middle distillates used as diesel, jet fuel and heating oil by road hauliers, railroads, airlines and farmers as well as many homes, offices and factories.

As a result, some analysts are forecasting a severe shortage of middle distillates, causing prices to spike, while others see a more limited impact.

The effect of the IMO regulations even merited its own section in the US government's annual "Economic Report of the President" prepared by the Council of Economic Advisors (CEA) and published earlier this month.

"Global bunker fuel represents about 5 percent of total oil demand" and the reported warned "fuel switching by ships in 2020 may cause significant disruptions in specific product markets."

The CEA predicted a shortage of 200,000-600,000 barrels per day in compliant fuels which "will likely trigger higher prices, though estimates of price shocks to fuels including diesel, gasoline and jet fuel vary substantially".