Why WTI Could Crash In The Coming Weeks
West Texas Intermediate could drop to US$65 a barrel later this year on the back of extra maintenance work at U.S. refineries, Tom Kloza from the Oil Price Information Service has warned. Speaking on CNBC, Kloza said this maintenance season was the last chance for many refineries to hop on the new bunker fuel train by boosting their capacity for low-sulfur diesel and fuel oil.
“The next six to seven weeks we’re going to see demand for crude drop by about 1 to 1.5 million barrels a day. It’s refinery maintenance season,” Kloza said.
The new bunker fuel emission rules, effective from 2020, stipulate that only vessels using fuels with sulfur content of 0.5 percent or less will be allowed to roam the oceans. The change is part of the International Maritime Organization’s strategy to cut carbon emissions from maritime transport by half by 2050.
The change has been touted as beneficial for refiners that are equipped to produce low-sulfur fuel oil and diesel, as well as LNG producers. Yet the adjustment will take time, and during this time demand for crude will be lower. How serious the effect on WTI prices will be remains to be seen, however.
For starters, many of those following WTI must have already factored in maintenance season and winter as weakening demand press down on prices. True, Kloza’s comment that this maintenance season will have a more severe impact on prices makes sense, but this additional maintenance should not come as a surprise to market watchers: there has been a lot of coverage about the IMO fuel rules and there’s likely to be even more in the run-up to its entry into effect.
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