Natixis on IMO 2020 and the implications for the oil market

Natixis has released a short video for its expected and predicted implications of IMO 2020 – a regulation implanted by the International Maritime Organization (IMO) that targets sulphur levels in marine fuel. Sulphur content in marine fuel will be required to drop from 3.5% to 0.5% by 2020.

Shippers can comply with 2020 regulations by either switching from high sulphur fuel oil (HSFO) to marine gas oil (MGO), ultra-low sulphur oil (ULSFO), scrubbers or LNG powered ships (although still at an immature stage). Highlights from the video include…

• “Limited scrubber adoption and the incapability issues of ULSFO mean the main demand shift will be from HSFO to MGO.”
• Natixis predicts the current market demand at 3.8 million barrels per day (MBPD) for HSFO, 1.3 MBPD for MGO and 0 MBPD for ULSFO. It predicts the 2020 demand will be 1.5 MBPD for MBPD, 2.6 MBPD for MGO and 1.0 MBPD for ULSFO.
• “Shifts in demand for fuels will cause major dislocations in pricing relationships. We expect the main changes to occur by the second half of 2019 as stakeholders gear up for the regulatory change.”
• Natixis expects discounted heavy crudes flows to US refineries to increase while light/sweet crude to be exported in greater numbers from the US too – exports forecasted to be consistently above 3MN b/d by 2020.
• Winners will be complex refineries and shippers who have installed a scrubber prior to the deadline.
• Losers will be simple refineries and shippers who have not installed a scrubber.