Chaos in the Oil Markets
“‘It’s a complete mess’: Energy market in flux ahead of a global shipping revolution, analysts warn”
That was the headline today on CNBC, as we are a week away from the implementation of IMO 2020 rules.
On January 1, 2020, the International Maritime Organization (IMO) will impose new emissions regulations designed to significantly curb pollution produced by the world’s ships.
The new rules will outlaw the use of high-sulfur marine fuel and mandate the use of low-sulfur marine fuel.
In my newsletter Bull and Bust Report, I’ve identified a few companies that will benefit from this massive change.
And massive it is. Over 90% of the world’s trade is carried by sea, and more than 170 countries signed on for the pollution-reducing change. Ships that are in violation of the law could risk them being impounded.
And as the United States is the world's leading importer and has few international ships, it will enforce the new rules. On top of that, shippers risk losing their insurance if they violate the new rules.
Already we are seeing tanker rates increase due to the new costs associated with switching fuels. Maersk says it will cost $2 billion for its line alone.
Reuters is reporting strong demand for low-sulfur crude, writing:
Rates for Aframax-class crude oil tankers leaving the U.S. Gulf Coast hit a record this week, reflecting strong demand in Europe and the Mediterranean for low-sulphur crude.
Equinor ASA and Unipec, the trading arm of China's top refiner Sinopec, provisionally chartered Aframax tankers Everest Spirit and Nordorchid, respectively, this week at rates of 245 worldscale points, according to one broker and Refinitiv Eikon data. Both vessels are headed to Europe.
The worldscale rate translates to about $60,700-per-day, well above the $46,800-per-day rate a week ago for Aframax vessels.
Rates have been rising for the past few months and should spike starting next week.
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Singapore has over 30 ships floating offshore full of low-sulfur fuel just waiting for the pop in price.
Obviously, refiners that produce low-sulfur fuel will be winners as this situation unfolds.
All the best,
Since 1995, Christian DeHaemer has specialized in frontier market opportunities. He has traveled extensively and invested in places as varied as Cuba, Mongolia, and Kenya. Chris believes the best way to make money is to get there first with the most. Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor's page.
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