Testifying before a US Senate Energy Committee hearing last week, US Energy Information Administration (EIA) Administrator Linda Capuano said that IMO 2020 will add about $2 per barrel on light, sweet crude oil prices in 2020 – but the effect of the new regulations on the overall oil markets will be outweighed by the downward pressure from slowing global economic growth.
Going into further detail, Capuano commented: ‘We anticipate that the IMO 2020 regulations will put upward pressure of about $2 per barrel on light, sweet crude oil prices in 2020, which will moderate in the following years. However, the regulations will have a longer-term effect on petroleum supply, demand, and trade flows.
‘We expect the IMO 2020 regulations to put upward pressure on light, sweet crude oil prices in 2020 because of increased demand for that crude oil to produce lower-sulphur marine fuels. As a result, we are forecasting the price difference between light, sweet crude oil and heavy, sour crude oil to be wider next year. However, as a result of the slowing growth in global gross domestic product and the resulting slower growth in global oil demand, we expect global oil inventories to increase and, in general, put downward pressure on oil and petroleum product prices. As a result, our November STEO forecasts Brent crude oil prices to average slightly higher than $60 per barrel in 2020, compared with an average of $64 per barrel in 2019. We expect the effects of IMO 2020 regulations on crude oil prices to be less significant than the effects on petroleum product prices.’
Capuano also told the committee that IMO 2020 could be good news for the US refining sector.
‘Refineries in the United States, where much of the refining capacity has downstream units that upgrade residual oils into more valuable and lower-sulphur products such as diesel, are well positioned to supply the global marine-fuel market with low-sulphur bunker fuel,’ said Capuano.
‘We expect that gross inputs into refineries will increase to a record level in 2020, resulting in an average utilisation rate of more than 90%, a high rate by historical comparison.’
The EIA Administrator anticipated that much of the US-produced IMO 2020 fuel will be sold not in US ports, but exported to overseas bunkering hubs.
‘The United States represents a relatively small share of demand in the global bunker fuel market,’ explained Capuano. ‘We believe that US refiners will export much of the increased production of diesel fuel and other refined products that will result from higher refinery runs. As US refiners export diesel and low-sulphur residual fuel oil to supply an increasing share of the global demand for low-sulphur bunker fuel, we anticipate that exports will continue to grow in 2020. In fact, we estimate that in September of this year, US exports of crude oil and petroleum products started exceeding imports. We expect that US net exports will continue to grow in 2020 and that low-sulphur fuels will provide a large share of the increased exports.’