Will Oil Bulls Rule 2020?
With the New Year already knocking at the door, long-suffering energy investors are looking to put another disappointing year behind them--and the International Maritime Organization’s sulfur regulations targeting the…
With the New Year already knocking at the door, long-suffering energy investors are looking to put another disappointing year behind them--and the International Maritime Organization’s sulfur regulations targeting the shipping industry have oil bulls dreaming of a much better 2020.
They’re banking on Goldman Sachs estimates that complete compliance with IMO 2020 will increase refining costs by 0 billion in the first year, which is likely to indirectly impact the price of other fuel products such as gasoline.
But the bears are calling this one for themselves, too, saying the new rules aren’t going to have any significant impact at all.
There is little else in the bulls' favor outside of the IMO change, so a lot is riding on this for oil price hedging as we enter the new year.
The new global environmental standard for shipping fuel calls for sea-faring vessels to switch from 3.5% high-sulfur fuel oil to marine fuel with no more than 0.5%S m/m sulfur content beginning January 1, 2020.
The United States, together with several flag states, have tried to lobby for a phase in the rule’s implementation to no avail, meaning the set deadline stands.
The maritime industry has been targeted due to its outsized role in global air pollution.
According to Goldman Sachs, ships account for just 5% to 7% of global transport oil demand but spew out 50% of sulfur emissions because they tend to use the dirtiest (and cheapest) fuels. The IMO says the move will prevent over half a million premature deaths from air pollution globally over the next five years.Related: Should Arctic Oil Be Kept Underground?
The new rules are also expected to drive the cost of cleaner alternatives such as maritime diesel oil higher and generally boost oil prices.
However, the actual margin of the oil price boost depends on whom you ask, with a cross-section of experts predicting drastic price increases while others are less sanguine and expect minimal changes.