IMO 2020 Sulfur Regs Will Push Crude Prices to $90/bbl in 2020: Morgan Stanley

Wednesday May 16, 2018

The introduction of a global 0.50% sulfur cap on marine fuel from January 1, 2020 will put increased pressure on middle distillate demand and push Brent crude prices to $90/bbl in 2020, analysts at Morgan Stanley said today.

Stockpiles of middle distillates are already nearing five-year lows, and as already discussed at length in these pages, the majority of Shipowners/operators are expected to switch away from HSFO to burning low sulfur distillates to comply with the new IMO 2020 rule.

"We foresee a scramble for middle distillates that will drive crack spreads higher and drag oil prices with it," wrote Morgan Stanley.

The sulfur cap is forecast to add an extra 1.5 million barrels per day (bpd) to crude demand by 2020, which will be part of an overall increase in demand of 5.7 million bpd in that time.

The analysts say it is unlikely crude production will increase enough to meet this growth, adding to the shortage of middle distillates.

"We expect the crude oil market to remain undersupplied and inventories to continue to draw," they said.

In the current market, $90/bbl Brent would mean IFO380 priced at around $500/mt and MGO around $810/mt, but how this will translate into bunker prices in 2020 is unclear

With marine HSFO demand likely to be destroyed in the approach to January 1, 2020 as demand shifts to compliant MGO, the differential between the two products could well be significantly wider.