MARPOL implications on refining and shipping markets

In 2020, global sulfur limits for bunker fuel will be lowered from the current 3.5% to 0.5%, affecting over 3 million b/d of residual fuel oil (resid). We expect the shipping industry to react by switching to a combination of marine gasoil and low-sulfur resid bunker. This will at least initially result in higher refining margins and wider light-heavy differentials, making an array of sulfur removal investments very attractive. However, the opportunity for refiners will depend greatly on how quickly other sectors respond.