Oil Markets Are In For A Bumpy Ride
The always-volatile oil market is set for even more volatility over the next two years as investors and speculators try to make sense of the conflicting market forces determining the pace of demand growth and global oil supply.
Over the past month, the two key themes have been how much Iranian oil will come off the oil market from U.S. sanctions in November, and how much demand growth could suffer with the trade wars. More recently, another theme is the emerging markets turmoil following Turkey’s crisis. Throw in all the new and much stricter International Maritime Organization (IMO) regulations on sulfur fuel oil requirements from 2020 that are expected to upend the refining and shipping markets, and oil prices are set for wild swings, industry executives and analysts say.
The severe IMO restrictions on fuel oil’s sulfur content—aimed at reducing emissions—will drive increased demand for middle distillates such as diesel and marine gasoil, which in turn will push up demand for crude oil, Morgan Stanley analysts say. This would boost crude oil demand by additional 1.5 million bpd, potentially sending oil prices to $90 a barrel in 2020, according to Morgan Stanley.
But before the 2020 regulation, analysts and investors are closely watching two currently unfolding developments—the sanctions on Iran’s oil and possibly weakening global oil demand growth—the main bullish and bearish factors, respectively, in the market right now.
“With new sanctions coming into play and also the IMO 2020, we see there is more volatility and therefore more opportunities to trade. So, we see our customers taking, slowly but surely, positions for that to happen,” Eelco Hoekstra, chief executive at independent tank storage company Vopak, told CNBC on Friday.
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