Caspian Energy Journal Caspian European Club
Monday, 17 December 2018 17:00

Marine fuel sulfur limits to affect global oil markets

Marine fuel sulfur limits to affect global oil markets

International regulations limiting sulfur in fuels for ocean-going vessels, set to take effect in January 2020, have implications for vessel operators, refiners, and global oil markets. Stakeholders will respond to these regulations in different ways, increasing uncertainty for crude oil and petroleum product price formation in both the short and long term, Caspian Energy News ( reports with reference to the U.S. Energy Information Administration.

The upcoming 2020 rules apply across multiple countries’ jurisdictions to fuels used in the open ocean, representing the largest portion of the approximately 3.9 million barrel per day global marine fuel market, according to the International Energy Agency.

The International Maritime Organization (IMO), the 171-member state United Nations agency that sets standards for shipping, is set to reduce the maximum amount of sulfur content (by percent weight) in marine fuels used on the open seas from 3.5% to 0.5% by 2020. These regulations are intended to reduce sulfur dioxide, nitrogen oxides, and other pollutants from global ship exhaust.

The upcoming IMO regulations pose a significant challenge for global petroleum refineries. Removing sulfur from residual oils or upgrading them to more valuable lighter products such as diesel and gasoline can be an expensive and capital-intensive process.

One approach refineries could pursue is to divert more low sulfur distillate fuel into the bunker fuel market, which would mean ocean-going ships would be competing with trucks, heavy equipment, trains, and planes for supplies of distillate fuels at a time when global demand for distillate is already high. To respond to added demand for distillate fuels, refineries can increase the rate they process crude oil or invest and build more refinery capacity to produce distillate fuels. Both options would increase demand for crude oil.

The decisions refiners and shippers make in response to the IMO 2020 rules heavily influence one another, adding to uncertainty and complexity.

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Person in charge of the newsline: Olga Nagiyeva 

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