Publications: Notes at the Margin

Reliable Suppliers; IMO 2020 Impacts: Many Moving Parts (October 28, 2019)


Igor Sechin, CEO of Russia's largest oil company, Rosneft, told listeners at a conference in Italy on October 24 that the drone attacks on Saudi Arabia undercut that nation’s reputation as a reliable supplier. As quoted by Reuters, Sechin said the bombing gave "grounds to rethink Saudi Arabia’s role as an undoubtedly reliable oil supplier."


Sechin's statement created a small kerfuffle. Within twenty-four hours, the Russian energy ministry issued an apology of sorts: "The quick restoration of the production capacity in Saudi Arabia after the drone attacks has once again underscored the professionalism and reliability of the largest producers in the industry."


The use of the term "reliable supplier," though, raises an issue of semantics that Rosneft’s CEO may not have understood. While Saudi Arabia’s production facilities are vulnerable to sudden interruptions—as are facilities most everywhere—Saudi Arabia has demonstrated that it is better prepared to keep oil flowing to customers than any other producer. Indeed, it is the most reliable supplier of energy.


Re our second topic, the dreaded IMO 2020 regulation on maritime fuel goes into effect in fewer than three months. Refiners, particularly the US refiner members of the Coalition for Energy Security, dream of the higher margins they believe will come. Shipowners, consumers, and others worry about the price impact, especially given refiners' unreliable responses at times of past regulatory changes such as the shift to ultra-low sulfur diesel in 2008. The likely market scenario then remains unchanged in our view. Looming over the transition will be the November 2020 election and, quite likely, the problems of impeachment. The risk of political intervention should not be discounted.


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