In this month’s Global Fuels Two-Year Outlook, we turn our attention to product markets through 2020, with special attention given to the impact of the IMO’s 0.5 percent sulfur cap on marine fuels, which will be implemented globally in January 2020.
Next year, global demand for gasoline, gasoil, jet fuel, kerosene, and fuel oil is expected to rise by 770,000 b/d, following an increase of just 440,000 b/d this year. This acceleration will be driven primarily by a return to demand growth in China. However, in 2020, a slowdown in global economic growth, in combination with relatively high petroleum product prices, will limit product demand growth to just 450,000 b/d.
Meanwhile, the impact of the IMO sulfur rules will be felt in product markets by October 2019 when companies begin to switch over their tanks. In 2020, MGO demand, consumed directly and in a blend, will reach 1.9 million b/d, up from 800,000 b/d in 2018. Demand for LSFO bunkers will reach 900,000 b/d, up from 300,000 b/d in 2018. HSFO bunker demand will average 1.4 million, down from 2.9 million b/d, with 250,000 b/d consumed legally through scrubbers, the rest through non-compliance. The increases in refinery throughput and yield shifts necessary to meet the surge in gasoil demand will have bearish consequences for other markets, especially HSFO.
In response to the IMO’s sulfur cap on marine fuels, middle distillate spreads to crude will begin to rise sharply toward the end of 2019 and remain wide through 2020. Meanwhile, fuel oil prices, particularly for HSFO, will collapse and the fuel oil discount to crude will remain wide through the forecast period. Gasoline’s premium to crude will remain weak through 2020 after narrowing in 2019 due to an oversupplied market.
Over the next two years, global gasoline and middle distillate trade flows will shift as Europe exports less of the former and imports less of the latter, but these changes will be overshadowed by a dramatic re-ordering of the global fuel oil trade in the wake of the IMO’s 2020 sulfur cap. In 2020, HSFO trade volumes will diminish rapidly, while LSFO trade flows shift to supply adequate bunker blending components to various regions, as detailed in this publication’s Trade Insight.