Publications: Notes at the Margin

Avoiding Catastrophe: How to Fix the IMO's Distillate Disaster (April 2, 2018)


Beginning January 1, 2020, the International Maritime Organization will require all ships not equipped with scrubbers to burn fuel with a sulfur content no more than 0.5 percent when traveling in waters outside the IMO's stricter Emission Control Areas. The current average sulfur content of bunker fuel is 2.7 percent. Neither the IEA nor the IMO's consultant CE Delft assessed the IMO rule's impact on crude prices. In our view, they will create precisely the market response seen in 2007 and 2008, when crude prices tripled, and then later in 2010 and 2011 when prices rose fifty percent after Libyan production collapsed. Left unchanged, the IMO rules could cause crude prices to triple again or even quadruple. This week's report discusses several ways that price impact might be ameliorated.


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