Is A Diesel Crunch Coming?
The new ship fuel regulations coming into force at the start of 2020 are set to create an initial confusion on the refining market and crude oil and oil product trade flows, analysts and industry experts say.
We are now just 14 months away from January 1, 2020—the start date which the International Maritime Organization (IMO) has set for the new rules on using only 0.5-percent or lower sulfur fuel oil on ships, unless said ships have installed the so-called scrubbers—systems that remove sulfur from exhaust gas emitted by bunkers.
Analysts, experts, and industry representatives are divided as to how great of an impact those new rules will be and whether there will be enough middle distillates—which include diesel and the lower sulfur marine gasoil—to meet demand for both land use, in road transportation, agricultural machinery and industry, and for use on ships at sea.
One way to comply with the IMO rules is to have scrubbers installed, which requires upfront costs, but later these would pay off with the expected much lower price of high-sulfur fuel oil.
The other way is using fuel that contains 0.5 percent sulfur. These fuels are basically in the same middle distillate product category like road diesel or jet fuel.
Some analysts have started to warn that the competition for those middle distillates could lead to shortages of diesel, resulting in price spikes. The other camp says that with diesel demand slowing in Europe and possibly reaching plateau in demand in China, there will be enough middle distillates around.
Amid expectations of fuel prices spikes in a presidential election year, the Trump Administration is seeking to slow down the 2020 introduction of the new ship fuel rules.
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