Publications: Notes at the Margin

IMO 2020: Supply, Demand, Speculation, 2008, and the Idiot Box (September 3, 2019)


The maritime industry’s transition to low-sulfur bunker fuels has been an endless conversation topic among those focused on the oil industry now for almost two years. Millions of words have been written. Hours have been wasted covering the subject on the cable business news networks, "idiot-box" shows that divert everyone’s attention. Often, particularly in our reports, analogies have been made to the 2008 disaster that occurred when environmental authorities forced refiners to replace diesel containing fifty parts per million (ppm) sulfur with ultra-low sulfur diesel containing ten ppm. Economists have pontificated ad infinitum on the price implications of the sulfur standards then and now. We are guiltier on this front than most.


Today, after all the commentaries, all the forecasts, all the media appearances, it must be said that no one has the faintest idea of how the IMO 2020 transition will play out in markets. Any smart forecaster should just admit that he or she does not know how prices will develop.


In this issue, we attempt to identify the factors that contribute to this uncertainty. While we worry that diesel prices could rise dramatically, as we have written in the past, we note that some key conditions that previously suggested a doubling of prices are absent. Thus, we conclude that this time may really be different. We offer several reasons to make this assertion.


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