IMO 2020: Oil Markets can Deal With 0.5% Sulfur Change

IMO 2020: smoother transition possible. File Image / Pixabay.

An oil market analyst sees a smoother-than-expected transition from the International Maritime Organisation's (IMO) 0.5% sulfur cap on bunker fuel as refiners have been anticipating rising global diesel demand.

Global diesel consumption has been rising faster than gasoline for the past 25 years with refiners responding "by squeezing more diesel and jet fuel from every barrel, mostly at the expense of lower-value products such as heavy fuel oil, bitumen and asphalt", John Kemp, a market analyst with Reuters, said.

The IMO's sulfur rule is likely to "accelerate the transition to distillate fuel oil and away from heavy fuel oil".

While analyst opinion has pointed to strong distillate demand from IMO 2020 producing a price spike in refined oil products, Kemp has said that the oil products' market is already adjusting.

"With prices [for middle distillates such as diesel and jet fuel] already starting to adjust, there is probably enough flexibility in the system to enable it to meet the rise in middle distillate demand over the next 12-15 months," Kemp said.

That time span would take the market through the IMO 2020 start date.

On the consumption side, price changes will help smooth the adjustment to IMO rules, with higher diesel prices forcing more fuel efficiency in the freight transportation sector, according to Kemp.

And the sharp rise in diesel prices relative to gasoline is likely to accelerate the shift away from diesel among European motorists, making more fuel available to the shipping sector.

From the start of 2020, the global fleet must use 0.5% sulfur bunker fuel under IMO rules or have the necessary equipment installed to allow for the continued use of 3.5% heavy fuel oil.