In its annual World Oil Outlook OPEC’s Reference Case assumes that only 60% of bunker demand will comply with the new regulations of global sulphur cap in 2020. The compliance of 60% in 2020 will be reached by a combination of legal non-compliance through FONAR requests, the potential use of waivers for vessels with existing plans to install scrubber technology, as well as some part of non-enforcement or illegal non-compliance.

The outlook also states that the oil demand growth in 2020 will be higher as a result to the IMO regulations, primarily due to the likely surplus of high sulphur fuel oil volumes priced at a discount assumed to be absorbed by the power generation sector and volumetric processing gains from switching from fuel oil to diesel. It is supposed that the required volume of low sulphur bunker fuel in 2020 will be determined by the number of scrubbers installed, as well as the level of assumed ‘legal’ and ‘illegal’ non-compliance. According to OPEC, even with a significant non-compliant bunker demand in 2020, the refining industry is expected to be challenged in terms of utilization rates, required fuel mix and blending requirements and the impact on price differentials and refining margins.

Despite many uncertainties regarding the upcoming sulphur cap, OPEC suggests the existence of widening differentials between high and low sulphur fuels, especially around 2020, to be certain. The cost structure of the shipping industry is predicted to be the hardest hit, either through the higher costs of fuel or the costs of scrubbing facilities. However, this is not just a shipping fuel or shipping industry challenge, since the co-product nature of the refining industry means that tightness in marine fuels will also carry over into land diesel and other clean fuels, conforming to the World Oil Outlook.

Read the full outlook here: 2017 OPEC World Oil Outlook