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EIA sees muted price impact from IMO 2020 marine sulfur cap

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EIA sees muted price impact from IMO 2020 marine sulfur cap

Washington — The January 2020 implementation of a 0.5% global marine fuel sulfur cap will increase US diesel margins and put "modest upward pressure" on crude prices in late 2019 and early 2020, the Energy Information Administration said Tuesday.

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Price effects will be most acute in 2020, but will diminish over time, EIA said in its Short-Term Energy Outlook.

It was the first STEO with analysis on the market impact of the International Maritime Organization's implementation of a 0.5% global marine fuel sulfur cap, from the current 3.5% limit.

Veteran oil analyst Antoine Halff said the projected muted price impact were "nothing worth tearing down a treaty for," given others' predictions that the policy would cause global economic turmoil.

"The STEO acknowledges a diesel price bump from the sulfur cap, but it is more than offset by lower crude prices," Halff said on Twitter.

EIA sees diesel refining margins rising to an average of 48 cents/gal in 2019 and 65 cents/gal in 2020, from 43 cents/gal in 2018.

Gasoline margins averaged 28 cents/gal in 2018, and EIA sees them averaging 29 cents/gal in 2019 and 33 cents/gal in 2020.

The IMO rule will curb demand for high sulfur fuel oil, currently the most popular marine fuel.

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S&P Global Platts Analytics expects an initial global displacement of about 3 million b/d of HSFO.

Rapidan Energy Group expects the IMO rules to "spark upheaval in the distillate market" and "possibly provoke political intervention from the Trump administration," it said in a note this week. It pointed to International Energy Agency projections of a 20%-30% price spike.

The Coalition for American Energy Security, a group of oil and union groups, formed recently to educate US lawmakers about the benefits of the sulfur cap, arguing that the US energy industry is uniquely positioned to supply IMO-compliant fuel.

"These standards give the US a significant advantage over foreign oil producers whose nations haven't made necessary infrastructure investments," said spokesman Ken Spain. "The investments made by US energy producers will ensure that timely implementation of the IMO standards will provide greater energy security and increased geopolitical advantage for the United States."

-- Meghan Gordon, meghan.gordon@spglobal.com

-- Edited by Valarie Jackson, newsdesk@spglobal.com