The Phil Flynn Energy Report
The new IMO 2020 rules go into effect but will ship be able to quit dirty fuel cold turkey? That’s the question for oil traders as we go into a Thanksgiving week that may see unusual activity as U.S. trading volume dries up. Oil prices are showing resilience, signaling a much better demand outlook for the global economy.
Global oil inventories are tightening and we are getting into crunch time as refiners need to ramp up production to meet the soon to be implemented International Maritime Organization (IMO) 2020 rules that go into effect in January. The marine sector will have to reduce sulfur emissions by over 80% by switching to lower sulfur fuels. The problem is that globally those supplies are tight. This may cause problems and could force higher gas diesel prices.
S&P Global Platts reported that Russia proposes to hold off a tougher international sulfur cap on marine fuel emissions until 2024 for river vessels in the Eurasian Economic Union, a spokesman for the Ministry of Energy said last week. The Ministry of Energy of Russia, together with the Ministry of Transport of Russia, suggests delaying the implementation of rules for lower sulfur content in marine fuel in the territorial waters of the Eurasian Economic Union, which comprises Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan, a spokesman said. This would lead to dramatic price rises of bunker fuel for the river fleet and the barges that carry products along the rivers and typically to floating storage in Russian territorial waters, and also for ship products during the open river navigation to the northernmost remote areas under the so-called 'northern shipments,' the spokesman said. Others are suggesting that there should be some waivers because the sudden surge in fuel demand could cause spot shortages and dislocations. For oil, this keeping the spot market tight and causing a bump to Brent.
In the U.S., private forecasters are suggesting another drop in Cushing, Oklahoma oil supply. That would suggest that refiners are more than likely to continue their ramp up and should lead to a big 3-million-barrel crude draw this week. Oil products will be mixed with distillate rising by 1.0 million and gas falling by 2.0. Runs up 1.5 this week.
Baker Hughes Co. BKR, -0.75% on Friday reported that the number of active U.S. rigs drilling for oil fell by 3 to 671 this week. That followed declines in each of the last four weeks. The total active U.S. rig count, meanwhile, also fell by 3 to 803, according to Baker Hughes.
Oil is also falling. In U.S.-China trade Reuters reports, "An ambitious “phase two” trade deal between the United States and China is looking less likely as the two countries struggle to strike a preliminary “phase one” agreement, according to U.S. and Beijing officials, lawmakers and trade experts.”