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Morgan Stanley forecasts $90 brent oil prices by 2020

18 May 2018

The International Maritime Organization (IMO) 2020 sulphur cap which requires vessels to use 0.50% sulphur limit marine fuel will create increased demand for crude and drive the price of brent crude to as much as $90 per barrel by 2020, believes Morgan Stanley analysts.

“We foresee a scramble for middle distillates that will drive crack spreads higher and drag oil prices with it,” writes Martijn Rats in a report as quoted by Bloomberg.

The system configurations of certain refiners such favour middle distillate production and minimal high-sulphur fuel oil output, such as Repsol SA, Reliance Industries Ltd., Valero Energy Corp. and Tupras Turkiye Petrol Rafinerileri AS, will be among those which will see “the most advantageous combination after 2019,” he suggests.

The increased use of distillate fuels by vessels to meet the IMO 0.50% sulphur cap is expected to boost demand by an additional 1.5 million barrels a day by 2020.

However, current refining capacity will not be enough to meet the world’s total demand of 5.7 million barrels a day by 2020.

“The last period of severe middle distillate tightness occurred in late-2007/early-2008 and arguably was the critical factor that drove up Brent prices in that period,” Rats wrote; he referred to the period when crude oil approached levels close to $150 a barrel.

“We expect the crude oil market to remain under-supplied and inventories to continue to draw,” the bank said. “This will likely underpin prices.”

Published: 18 May, 2018

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