The Newer World Oil Order

The EIA says that Vessel operators have several choices for compliance with the new IMO sulfur limits. One option is to switch to a lower-sulfur fuel compliant with the new IMO rules. However, the cost, widespread availability, and specifications of new fuel for use in marine engines is still uncertain. Another option is to use scrubbers to remove pollutants from ships’ exhaust, allowing them to continue to use higher-sulfur fuels. However, the process of installing scrubbers can be costly and can increase a ship’s operating costs. A small portion of existing marine vessels has already installed scrubbers, and that portion is not expected to increase greatly before 2020 because of time constraints and limited installation capacity. Even if scrubbers become widely adopted, which would allow the continued use of fuels with higher-sulfur content, the price and availability of higher-sulfur fuels after 2020 remains uncertain. Ships also have the option to switch to nonpetroleum-based fuels. Some newer ships and some currently being built have dual-fuel engines that would allow them to use nonpetroleum-based fuels such as liquefied natural gas (LNG) after minimal modifications. However, the infrastructure to support the use of LNG as a shipping fuel is currently limited in both scale and availability.

This situation will be made worse if sanctions on Venezuela continues to remove heavy diesel. Check out Pricelinks for a video on this.

Overnight oil prices have been choppy and weak as we saw a somewhat bearish American Petroleum Institute. The API reported the U.S. crude supply increased by 2.51 million barrels last week. The build was larger than expected and it was enhanced by an 889,000-barrel increase in Cushing Oklahoma supply that roughly confirmed numbers that we heard out of private forecaster Genscape earlier in the week. Gasoline supplies also came in much higher than expected, posting an increase of 1.731 million barrels and distillates with an increase of 1.141 million barrels. The EIA should give us some direction as the market needs a little help to follow through on what could be a significant upside breakout. Seasonally we might be a bit early for major bullish action but breaks in the market will be supported. 

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