Publications: Notes at the Margin

IMO 2020: Worst-Case Scenario for Retail Diesel Price (August 13, 2018)


Under the circumstances described in this report, the diesel price increase tied to the IMO rule’s implementation should be around $100 per barrel, or $2.38 per gallon. This would require US retail prices to double. We also examined the economic impact of higher prices in the June/July 2018 Petroleum Economics Monthly circulated last week. Based on experience, we expect the price increases to reduce the growth rate of US GDP between three and four percentage points. Put another way, the IMO rule’s will cost the US one year’s growth. GDP will rise in 2022 to levels that would have been achieved in 2021 had the rule not been put into effect. The impact on global growth will likely be similar, whether concentrated in a single year or spread over two or three years. The higher prices will shave a year of growth from global GDP.


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