Publications: Notes at the Margin

The IMO, 2020, and $200 Crude (March 26, 2018)


The year 2020 will be all "2s" and "0s," obviously. The question posed here is will the price of crude in 2020 be all "2s" and "0s" as well, that is, will crude prices rise to $200 per barrel?


Most forecasters see lower rather than higher prices. For example, Consensus Economics just released its March report. The mean projection of the economists surveyed shows Brent remaining under $65 per barrel through 2020. The respondents also see a slight increase in gasoil prices. The consensus for 2020 is $564 per metric ton, an amount barely changed from today.


These forecasts ignore the market tsunami that will occur in 2020. On January 1 of that year, rules issued by the International Maritime Organization in 2008 concerning bunker fuel sulfur content take effect. Crude and product prices will very likely respond as they did between 2007 and 2008 when the EU forced refiners to introduce ultra-low-sulfur diesel in Europe. During the 2007-2008 episode, crude prices doubled, climbing from $70 per barrel to $130 in eight months as refiners desperately bid for the available light sweet crudes. The 2019-2020 experience may be far worse because the magnitudes are much larger.


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