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

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:

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.