Publications: Notes at the Margin

The IMO Conundrum (December 16, 2019)


Looking at the data and market trends, still from the equivalent of a hospital bed, we see four unanticipated developments:

  • First, all the analysts and economists looking at the issue, including this author, missed an important factor: the price elasticity of end-user demand.
  • Second, the ability of shipowners to finance heavy fuel oil purchases may be more limited than expected.
  • Third, the expected surge in demand for marine diesel has not occurred.
  • Fourth, shipping volumes have declined due to the trade war, a decrease that will put many undercapitalized companies out of business.

Beyond these four points, there is a fifth observation. Distillate inventories held in the United States are precisely following the 2007/2008 pattern. Prices will spike in 2020 should the trend continue.


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