The total marine fuel market accounts for around 4.5 million barrels per day.

In 2019, close to 3.5m b/d are accounted for by high sulphur fuel oil, the balance being scrubbed fuel oil and marine gasoil (MGO), Atkinson told a private dinner conference at London’s exclusive Connaught Hotel, the first in a series of "Impact" events co-hosted by Pictet Wealth Management and TradeWinds.

Julian Bray, editor-in-chief of TradeWinds, moderated the event, which also included presentations by the former chief economist at BP, Christof Ruhl, and Pictet Wealth Management global strategist Alexandre Tavazzi.

After speaking to various industry sources, including refineries and scrubber equipment suppliers, the International Energy Agency (IEA) estimates that, during the first year of IMO 2020, ships will still consume roughly 700,000 b/d of un-scrubbed fuel oil. There will be greater utilisation of fuel oil on scrubber-fitted vessels as well.

MGO usage will rise sharply, raising pricing outlook issues, as well as utilisation of the new, very-low sulphur fuel oil (VLSFO) grades which refineries are already making available.

Initial non-compliance by ship operators will erode gradually by the end of 2024 to “pretty negligible levels,” Atkinson said.

The level of fuel oil used by vessels equipped with scrubbers will remain relatively constant during that 2020-2024 period, as will MGO. Growth in the market will be driven by the new grades of VLSFO.

Neil Atkinson Photo: Geoff Garfield

Atkinson described the fuel transition in shipping as “immensely challenging” but also manageable thanks to the legwork that’s already been done.

Looking forward, an enormous range of estimates means the impact on prices is extremely difficult to predict. The IEA estimates an indicative price increase of over 20%, but global scale of the transformation means it is difficult to forecast with precision.

“There are insufficient pricing signals yet to be sure what will happen on a global basis,” Atkinson continued.

Going forward, he believes growth in demand for land-based diesel—either by trucking or industry—will be far lower than anticipated, which will serve as what he described as a "helping hand".

In the tanker segment, storage opportunities for VLCCs and aframaxes could flow from the need to supply ships with different grades of fuel once IMO 2020 kicks in.

Some parts of the world face huge logistical challenges in providing sufficient storage capacity to bunker vessels that are equipped with scrubbers, use marine gasoil or burn different fuel blends.

“The use of idle [tanker] capacity for storage could be a major factor,” Atkinson explained. “It would be one of the imaginative ways of dealing with the mismatches we are going to face around the world.”

Overall, the oil market is well supplied but will get tighter as the year progresses, supporting prices at today’s levels or even higher.

Atkinson noted the oil market reports that the IEA published in mid-May cut expectations of oil demand growth by 100,000 b/d from 1.4m b/d this year to 1.3m b/d.

But with so many uncertainties, including the US-China trade dispute, he acknowledged that the oil market is a tough one to call.

Views range enormously on where prices will go in 2019. “Perhaps one of the most diverse set of views on demand growth I can remember,” Atkinson concluded.

Pictet Perspectives

For more insights from the dinner-conference check out "Inflation warning flagged by former BP economist" featuring commentary from Christof Ruhl, former group chief economist at BP.

Presenter Alexandre Tavazzi, global strategist at Pictet Wealth Management, shares his perspectives about trends shaping shipping and commodity markets in “The reign of uncertainties”.