The worst impacts will be felt next year as markets scramble to make last-minute adjustments to accommodate maritime needs. Conventional, high-sulfur fuel oil (HSFO 3.5%S) prices fell significantly as its discount to crude oil grew from mid-September. Lo… Oil is the major source of feeding the global economy, supplying 95% of all the energy used in world transport. e. The above narrative assumes that crude oil production volumes from existing wells will not change markedly in 2020 as a result of price changes triggered by the IMO 2020 Rule. instead to enjoy the higher prices. The impact of IMO 2020. © 2020 Argus Media group. The IMO 2020 regulation was expected to cause considerable disruption in bunker fuel availability and cause oil prices to rise. Ocean Exports, New York-New Jersey Port Authority Feeling the Hit from Coronavirus. Importers and exporters must take note and closely monitor the increases in order to understand the actual cost of their products, and sell pricing. How many containers are lost approximately at ocean eve... Is it possible for people to travel at cargo ships? How will refiners respond? High-sulfur bunker demand currently makes up almost 50 percent of total global residual fuel oil demand. Find out more below about IMO 2020 and what it could mean for your business. Therefore, based on the data, it is hypothetical that although the implementation of the International Maritime Organization ruling will lead to marine conservation, it will trigger a significant inflation in the oil price. By the law, regulations are aimed at improving human health by reducing air pollution. IMO hosted (October 2019) a Symposium on IMO 2020 and Alternative Fuels to raise awareness and to take stock of the preparations for the IMO 2020 rule, and to discuss the role of alternative fuels in the decarbonization of international shipping. Three experts reflect on what this means. IMO 2020 is a regulation set by the International Maritime Organization that states that as of January 1, 2020, the sulfur emissions of all maritime vessels must be limited to 0.5% m/m (mass by mass), down from the current 3.5% m/m. The volume of oil demand affected by this change is significant. Using full calendar year averages takes seasonality into account, while using percentages instead of $/b takes into account changes in the underlying crude oil price. Demand for high-sulfur residual fuel oil for ship bunkers was 3.5 million barrels per day in 2018—out of 7 million barrels per d… Those price changes began in the third quarter of 2019 and accelerated in the fourth quarter. As shown on Table 1, the Rotterdam 3.5% sulfur fuel oil price relative to Brent widens from the current $10 per barrel (bbl) to almost $25/bbl by December 2019 when refiners are already operating in the IMO 2020 Rule mode that will take effect the following month. Still, consternation around IMO 2020 remains among several large fuel consuming sectors. Seventy-five percent of that consumption is heavy fuel oil (HFO), which is about to become noncompliant. Which countries have the biggest ports in the world? Maritime transport, which carries over 80% of the volume of global merchandise trade, relies heavily on oil for propulsion, and in view of the limitations imposed by existing technology and costs, there is not yet an alternate technology to replace oil. IMO 2020’s changes to the bunker fuel market can potentially affect fuel oil markets overall. Price signals will form, incentivising investment in the shipping and refining sectors, but these will take years to fully take effect. If the exporter is selling on FOB terms, the importer is paying for the costs of sea freight, so the importer’s costs will increase. Oil is the major source of feeding the global economy, supplying 95% of all the energy used in world transport. The increased costs of fuel could also increase vessel transit times. Those relationships are often referred to in the industry as “spreads.” Some things seen in fuel prices as a result of IMO 2020: Our website uses cookies to ensure that we give you the best experience on our website. When the price of ship fuel goes up by 50%, this could increase the cost of port-to-port sea freight costs by 10-20%. If exporters ship on CIF/CFR terms, they are already covering the costs of sea freight, so the exporter’s costs will increase. IMO 2020 Price Impact as Seen in Key Market Spreads As IMO 2020 loomed, market watchers in 2019 noted several takeaways in terms of the relationships between various crude grades and associated products. Prices for marine gasoil (MGO) and the new blended fuels are expected to rise sharply while HSFO prices will fall. IMO 2020 is a regulation set by the International Maritime Organization that states that as of January 1, 2020, the sulfur emissions of all maritime vessels must be limited to 0.5% m/m (mass by mass), down from the current 3.5% m/m. According to industry estimates, more than 90% of the global vessel fleet will be relying on compliant fuels when the sulphur rules step into force on 1 January 2020 and lines will need to invest in different technologies and operational investments such as scrubbers etc.. There has been some political pressure for the U.S. to somehow support and encourage non-compliance with IMO 2020 (by ships) through non-enforcement (by countries). What will be the impact of IMO 2020 on shipping lines..?? Energy Information Administration (EIA) has forecast minimal fuel price impacts of IMO 2020. Shippers don’t need to make any drastic changes to their process, but they do have to be aware of the price volatility will definitely take place in 2020. VGO is a key product in the shift to lower sulfur marine fuels under IMO 2020. All rights reserved. Creating a Competitive Advantage Using Business Automation, The Logistics of Handling and Distributing COVID Vaccines, Returning Empty Containers: A Real Struggle for Truckers at the Port of NY-NJ. Fleets that lock in reliable supply at a predictable price now will be … Among the market shifts that THP says are a sign of IMO 2020 preparation is the fact that the price of vacuum gasoil (VGO) is at a five-year high relative to Brent. However, this disruption … Traders in the market can also arbitrage time spread which derives from the differential in expected prices of oil/ products across time. In 2016, the International Marine Organization (IMO) agreed to limit the sulfur content in all marine fuels to 0.5 percent beginning in 2020, with the exception of fuel burned in Sulfur Emission Control Area regions, which are already at lower sulfur limits. As the January 1, 2020, deadline approaches, shipowners and refiners are formulating strategies to lessen the overall impact of IMO 2020, reducing the original predictions of widespread price … For example: In both cases, this will inevitably increase the landed cost of products. The IMO mandate comes after a year when diesel prices remained stable. Notice: By accessing this site you agree that you will not copy or reproduce any part of its contents (including, but not limited to, single prices, graphs or news content) in any form or for any purpose whatsoever without the prior written consent of the publisher. IMO 2020’s changes to the bunker fuel market can potentially affect fuel oil markets overall. It could also contribute to cargo delays, tighter capacity, and market volatility. 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