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Morgan Stanley: IMO's new sulfur cap will push oil to $90 a barrel

May 17, 2018 10:13 AM

Company analysts 'foresee a scramble for middle distillates' that will drive demand

Courtesy Bloomberg

(NEW YORK) — Morgan Stanley analysts say the price of Brent crude oil will reach $90 a barrel by 2020 as new fuel guidelines from the International Maritime Organization (IMO) take effect, Bloomberg reported.

The changes, which will force many vessels to use lower sulfur fuels beginning in January of that year, will lead to a boom in demand for middle distillate products including diesel and marine gasoil, triggering the need for more crude, according to Morgan Stanley.

“We foresee a scramble for middle distillates that will drive crack spreads higher and drag oil prices with it,” wrote analysts including Martijn Rats.

While crude has already received a boost due to supply cuts by the Organization of Petroleum Exporting Countries and geopolitical events including the U.S. decision to reimpose sanctions on Iran, the rule changes add to the impact. Global benchmark Brent, which neared $80 a barrel earlier this week, is trading at the highest levels since late 2014.

The IMO rules call for ships to reduce the maximum sulfur content of their fuels to 0.5 percent, from 3.5 percent in most regions currently, in an effort to curb air pollution that has been linked to respiratory diseases and acid rain. The changes are expected to create an oversupply of high-sulfur fuel oil while sparking demand for IMO-compliant products, putting pressure on the refining industry to produce more of the latter fuels.

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