HSBC in a fresh analysis has been more positive about the effects of IMO 2020 on shipping and oil trading industries. According to the financial institution, the early preparations for compliance that the shipping industry has taken, so far, can ensure that the disruption will be less than it was initially expected.
The vessels which have installed scrubbers or plan to install scrubbers are now approximately 2,500 units as of March 2019, HSBC notes relying on Clarksons data. This estimate is upwards revised from the previous estimate of 2,000 units, which was made on July 2018. As more vessels are installing scrubbers, the consumption of HSFO will also be higher and the need for marine diesel oil during 2020 and 2021 will also be less.
According to HSBC, during the first couple of years of the new regulation, the compliant fuel is expected to be at around 88% – 90% of the total marine bunker fuel, an estimate which is considerable higher than the previous 75%-80%.
As a result, HSBC expects that the better preparation of both the shipping community and the refiners will somehow lower the expected disruption from the regulations, when they will come into force on 1st Jan 2020.
HSBC also remains optimistic as far as the pricing is concerned. According to the financial institution, the spread between high sulfur and low sulfur fuel oil is expected to widen however not at such high levels previously estimated. As a result, HSBC has lowered its forecasts on diesel/gasoil margin and has taken into account a smaller discount of HSFO to crude oil.
In its analysis, the Bank also referred to the bans of open-loop scrubbers from the various port authorities globally. HSBC believes that such decision will not significantly affect shipping operations and this is because “during vessels’ long hauls, the time spent in open seas is over 90%” the report says.
Moreover, HSBC believes that the impact on the refining industry will also be easier than initially expected. According to the Bank the refining throughput worldwide is expected to rise substantially in 2020 (700,000 bpd), but in subsequent years the impact might fall to approximately 500,000 bpd. This estimate is much less than the approx. 800,000-900,000 bpd previous estimate, as the refining and shipping industries seem to adjust faster, as we are moving closer to the implementation of the IMO 2020, the bank noted.
Furthermore, HSBC expects to see a smaller deficit of diesel/gasoil relative to demand, than previously estimated, and this is the reason of such a positive revision.
As a result, the better refining utilisation and increased refining margins could also potentially boost European and US Oil Majors’ earnings by around 10% and their cashflow by approximately 5% during 2020, the Bank concluded.