Reassessing the Market Impact of IMO2020 1Q to Implementation

Whilst IMO 2020 was the oil industry’s in vogue subject at the start of the year, the topic has lost its lustre somewhat in recent months as market focus increasingly turns towards a slowing global economy and geopolitical tension in the Middle East. As we approach implementation , the broad trends that will characterise a “post-IMO” world are becoming clearer : • A larger market for Ultra Low Sulphur Fuel Oil ( ULSFO ) , with expectations for marine gasoil ( MGO ) demand lowered . We no w expect 1.4mn b/d of ULSFO demand and 1 .0 mn b/d of MGO demand in 2020 . • Scrubber numbers higher than expected, with installations increasing through the early-2020s as newbuilds come increasingly “scrubber ready.” • Through the early 2020s, marine fuel d emand is likely to flow from MGO , to HSFO and ULSFO as scrubbers are installed on newbuilds and ULSFO gains growing acceptance in the market . • Sour crudes to suffer less downside than previously expected , predominantly due to structural tightness on the supply side as sour crude producers struggle to bring barrels to market. Ultimately, t he market will be able to handle the change with greater ease than prior consensus expectations: • With gasoline oversupplied and straight run light-end yields increasing, refiners have jumped at the chance to lower FCC utilisation to supply compliant ULSFO, ( which has resulted in a demand response from shippers ) . • A slowing economy will result in gasoil consumption running below trend, providing significant slack for the shipping sector to expand consumption. • The g rowth in crude runs we expect next year to meet increased clean product demand from the shipping sector will be balanced by relatively high non-OPEC supply growth . The implementation of the regulations will not therefore directly result in a sustained appreciation in benchmark crude prices.