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Changes in shipping to push oil to US$90/barrel by 2020

SDI Logistics Co.,Ltd | Updated: May 25, 2018

MORGAN Stanley analysts predict Brent Crude will reach US$90 a barrel by 2020 as new international shipping regulations take effect, overhauling the types of fuels produced by refiners.

They said the changes that force vessels to consume lower sulphur fuels will lead to a boom in demand for middle distillate products including diesel and marine gasoil, triggering the need for more crude, Gulf Times reported.

"We foresee a scramble for middle distillates that will drive crack spreads higher and drag oil prices with it," wrote Morgan Stanley analysts.

While crude has already received a boost due to supply cuts by the Organisation of Petroleum Exporting Countries and geopolitical events including the US decision to reimpose sanctions on Iran, the rule changes add to the impact. 

Global benchmark Brent at $80 a barrel is trading at the highest levels since late 2014. Futures for the January 2020 contract are at $66.60 a barrel.

The rules from the UN's International Maritime Organisation call for ships to reduce the maximum sulphur content of their fuels to 0.5 per cent, from 3.5 per cent in most regions currently. 

The changes are expected to create an oversupply of high sulphur fuel oil while sparking demand for IMO-compliant products, putting pressure on the refining industry to produce more of the latter fuels.