Publications: Notes at the Margin

OPEC's Decision; Rules of Thumb and IMO 2020 (June 25, 2018)

 

We have two topics this week. The first is the outcome of the OPEC meeting, which finished Saturday. The second topic we have labeled "Rules of Thumb and IMO 2020." On the latter, economists often rely on rules of thumb when thinking about economic issues. They do so because such rules, derived from long-term data, often provide a better guide to future outcomes than the newest, most exotic models.

 

A new rule of thumb has recently been brought to our attention by Martijn Rats of Morgan Stanley. This rule relates to the percentage of distillate fuel oil produced from a barrel of crude. The number is amazingly constant. Using the rule, one can estimate the increased volume of crude that must be processed to meet the greater demand for diesel fuel that will manifest when the IMO 2020 marine fuel sulfur-content rule takes effect. As noted below, the Morgan Stanley rule of thumb warns of very dramatic and probably infeasible changes in market conditions. It may provide the best warning of problems to come.

 

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