The January 2019 Short-Term Energy Outlook (STEO), launched at midday at this time, for the first time consists of evaluation of the impact that upcoming adjustments to marine fuel sulfur specifications could have on crude oil and petroleum product markets. Beginning January 1, 2020, the International Maritime Organization’s (IMO) new laws restrict the sulfur content material in marine fuels utilized by ocean-going vessels to 0.5% by quantity, a discount from the earlier restrict of three.5%. The change in gas specification is expected to place upward strain on diesel margins and modest upward strain on crude oil prices in late 2019 and early 2020. EIA’s evaluation signifies that the price results that consequence from implementing this new normal can be most acute in 2020 and can diminish over time.
Residual oil—the long-chain hydrocarbons remaining after lighter and shorter hydrocarbons such as gasoline and diesel have been separated from crude oil—presently includes the most important part of marine fuels utilized by massive ocean-going vessels, often known as bunker gas. Marine vessels account for about 4% of global oil demand.
Removing sulfur from residual oils or upgrading them to extra useful lighter merchandise such as diesel and gasoline might be an costly and capital-intensive course of. Refineries have two choices with regard to residual oils: spend money on extra downstream models to improve residual oils into extra useful merchandise or course of lighter and sweeter crude oils in an effort to reduce the manufacturing of residual oils and the sulfur content material therein.
EIA forecasts that the implementation of the brand new IMO gas specification will widen reductions between light-sweet crude oil and heavy-sour crude oil, whereas additionally widening the price spreads between high- and low-sulfur petroleum merchandise. In the January STEO forecast, Brent crude oil spot prices increase from a median of $61 per barrel (b) in 2019 to $65/b in 2020 with about $2.50/b of this increase being attributable to greater demand for light-sweet crude oils priced off of Brent.
The expected elevated premium on low sulfur fuels will probably imply greater diesel gas refining margins, which EIA forecasts will increase from a median of 43 cents per gallon (gal) in 2018 to 48 cents/gal in 2019 and 65 cents/gal in 2020. Motor gasoline margins averaged 28 cents/gal in 2018 and are expected to increase barely to a median of 29 cents/gal in 2019 and 33 cents/gal in 2020.
As refiners maximize manufacturing of diesel gas, distillate gas refinery yields are forecast to increase from a median of 29.5% in 2018 to 29.9 % in 2019 and 31.5% in 2020, whereas motor gasoline yields fall from a median of 46.9% in 2018 to averages of 46.5% in 2019 and 45.6% in 2020. Residual gas yields lower from a median of two.4% in 2018 to a median of two.2% in 2020. Refinery runs are expected to increase from a median of 17.2 million barrels per day (b/d) in 2018 to a file stage of 17.9 million b/d on common in 2020, so small adjustments in refinery yields can have massive implications for the volumes of petroleum merchandise produced.
Because of the quite a few and numerous set of resolution makers concerned in complying with the laws and the global nature of the regulation, significant uncertainty exists relating to the forecast outcomes of the regulation. EIA’s This Week in Petroleum article printed tomorrow afternoon will go into extra element on EIA’s outlook for the way the brand new sulfur specs will have an effect on crude oil and petroleum product markets by the top of 2020. On Thursday, January 24, EIA will launch its Annual Energy Outlook 2019 with projections by 2050, which can mirror the long-term implications of the brand new sulfur necessities.