Fuel market calm ahead of IMO changeover

London - Fears about a shortage of diesel and other middle distillates stemming from new marine pollution regulations have receded, with distillate premiums falling to some of the lowest levels for two years. From the start of 2020, ocean-going ships will be required to use low-sulphur fuels or employ exhaust gas cleaning systems, known has scrubbers, under pollution control rules approved by the International Maritime Organization (IMO).

Fuel traders and shipowners have warned for several years that the switch from high-sulphur fuel oil (HSFO) to low-sulphur fuel oil (LSFO) or marine gasoil (MGO) could lead to shortages and rising prices. Marine gasoil is refined using similar processes to other mid-distillate fuels such as diesel and jet kerosene, widely in use by trucking firms, railroads, airlines, oil and gas drillers and farmers. Gasoil shortages could push up fuel prices for other users, with higher costs passed on to manufacturers and consumers, the U.S. Council of Economic Advisers warned in March.

“The shortfall will likely trigger higher prices, though estimates of price shocks to fuels including diesel, gasoline, and jet fuel vary widely,” the Council wrote in its annual report. “U.S. fuel consumers may pay higher prices in the medium term as a result,” the Council said (”Economic Report of the President”, CEA, 2019). In the event, however, stocks of gasoil and other middle distillates have remained comfortable and there has been little pressure on refining capacity to make them. The predicted marine fuel crisis has failed to materialise.

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