OIL MARKET WEEK AHEAD: New Shipping Fuel Regulations to Hit Oil Markets from January 1

Matt Weller, CFA, CMT December 16, 2019 8:30 AM

Whether the slight shift in the trade balance between the US and China over the last few months represents a sustainable long-term trend remains to be seen, but what is definite is that in September, the US - for the first time - exported more oil than it imported. These exports are contributing to an expected increase in global oil inventories likely to be the most pronounced in the first half of next year.

The US Energy Information Agency (EIA) expects Brent crude prices to be on average $3 cheaper next year at $61/bbl, and WTI prices to be on average $5.5/bbl below Brent crude prices:

When	What	Why is it important
Monday 16 Dec	OPEC Monthly oil market report	Insight into the oil output changes from OPEC members
Monday 16 Dec	US manufacturing PMI	Still in expansion territory, last at 52.4
Monday 16 Dec	US housing market index	Last at 70
Tuesday 17 Dec	EU trade balance	Trade data with China of particular interest
Tuesday 17 Dec	US housing starts	Health of the US construction industry
Tuesday 17 Dec	US industrial production	Taking the pulse of US industry, last up 0.8%
Tuesday 17 Dec	US capacity utilization	Look out for oil industry utilization rates
Tuesday 17 Dec	API weekly crude oil stocks	For the week ending Dec 13
Wednesday 18 Dec	ECB’s Lagarde speech	Ms Lagarde set out her rate policy on Thursday but any new comments about the health of the Eurozone could move markets
Wednesday 18 Dec	Germany IFO business climate	Expectations for German business
Wednesday 18 Dec	EIA crude oil stocks	Last at 0.822m
Wednesday 18 Dec	CFTC commitment of oil traders	CFTC publishes the report early this week. It is normally released on Fridays.
Thursday 19 Dec	US initial jobless claims	Insight into the state of the US job market
Thursday 19 Dec	US Philadelphia Fed manufacturing survey	Indicator of manufacturing sector trends
Friday 20 Dec	China interest rate decision	Rates currently at 4.15%

Pollution rule expected to affect US refinery runs

From the start of next year, new rules brought in by the International Maritime Organization will restrict the amount of sulphur in marine fuel oil in ships and tankers from 3.5% to 0.5%. Some ships will make smaller adjustments to avoid paying for the new type of fuel, but only about 30% of the ships will be able to do that while the rest of the vessels at sea will have little option but to switch fuels.

Even with shippers attempting to avoid compliance for as long as possible, global refineries will start to increase their refinery runs to upgrade as much of their high-sulphur heavy fuel into low-sulphur distillate fuel compliant with the new requirements as possible. The knock-on effect on crude oil prices will come from higher refinery utilization rates, which typically tend to dampen oil prices. According to the US EIA, US refineries are expected to increase their refinery runs by 3% by next year to a record level of 17.5 million b/d. This would boost refinery utilization rates to an average of 93% in 2020.

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