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The biggest change in global fuel regulations since leaded gas went away could cause price shocks

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Starting in 2020, ships found in violation of the new laws risk being impounded, and ports in cooperating countries are expected to police visiting vessels."This is the biggest change in fuel specifications since lead was taken out of gasoline, and it's global," said Tom Kloza, head of global energy analysis at Oil Price Information Service. That's why it was proposed in 2007," said Rick Joswick, head of oil pricing and trade flow analytics at S&P Global Platts.While big shortages of marine fuel are not anticipated, the price of diesel, used in trucking, could temporarily jump and become more volatile starting in the fourth quarter as ships begin to fuel up for long journeys, energy analysts say. They also expect more ships to add scrubbers.Eric Lee, Citigroup energy analyst, however, said it's likely fuel costs will rise, starting at the end of the year, and refiners' margins on diesel will also rise. "For diesel, I think it's going to mean that diesel prices on the coasts of the United States are going to be significantly higher than they are on the interior."Sulfur emissions from ships are currently very high, and Kloza said one study showed the annual emissions from one large container ship was comparable to the emissions from 10 to 15 million cars running on diesel fuel."On the diesel side, I think it's clear it's got to prop up diesel prices so there's the potential possibility of a spike in diesel prices next winter, and heating oil," said Kloza. "You're talking about rolling out a new marine fuel right in the winter of the northern hemisphere." He added, "If that market for marine fuel is high enough, the stuff that normally gets turned into gasoline and on road diesel is going to go to the vessel market."But Citigroup's Lee and other analysts said there could be a response from President Donald Trump if diesel or other fuels rise very much. There's no law that says any crude that's pumped in this country or any product that's refined in a U.S. refinery has to stay in the United States."The Coalition for American Energy Security said it believes the rule change provides a big opportunity for U.S. refined product exports and that recent analyses show the U.S. industry is on track to meet demand."IMO 2020 presents an enormous economic opportunity for the U.S. energy industry and its workers to supply low-sulfur fuels to the global market. That has big implications on supply chain," he said, noting cargoes could arrive days later than normal if ships slow their travel speed.Some analysts say the cost to shippers could rise by a third or more if they have to switch from high sulfur fuel to low sulfur fuel.Joswick said he expects U.S. refiners to easily handle the increase in marine fuel."Refineries have a certain amount of flexibility and they respond to price. "The U.S. is very well positioned," he said.He said the adjustment period for the transportation industry could last a few years."By 2022, into 2023, prices will have normalized and there's a new mix of fuel use in the shipping sector.

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