New Anti-Pollution Shipping Rules to Raise Oil Prices

International efforts to reduce air pollution has lifted the hopes of oil traders, as new shipping regulations are expected to boost demand for lower sulfur fuels, raising demand for crude, as the bank’s analysts report.

The current growth in oil prices already exceeds earlier predictions amid OPEC supply cuts, Sputnik reported.

Morgan Stanley’s report predicts that the Brent price will reach $90 per barrel by 2020, as demand for crude oil skyrockets by 1.5 million barrels a day, supported by the new shipping rules.

In less than two years, new regulations from the International Maritime Organization, designed to curb air pollution, are to come into force.

They require vessels to be either equipped with filters or use cleaner fuel with less sulfur.

As analysts expect a majority of shippers to prefer the latter option, the consumption of middle distillate fuel, such as diesel and marine gasoil, will increase, thereby pushing demand for oil higher, dragging crude prices up.

On the winning side of this equation are such refiners as Repsol, Reliance Industries, Valero Energy and Tupras Turkiye Petrol Rafinerileri as their production systems are tailored for producing middle distillates.

According to Morgan Stanley, the refiners are already struggling to meet growing demand for these particular products, including jet and diesel fuel, as reserves have nearly reached five-year lows.

The current rise of oil production is fueled by natural gas condensates and liquids, neither of which is used for producing the needed diesel.

The price growth was prompted by  recent cuts from the Organization of Petroleum Exporting Countries and the consequences of the US decision to withdraw from the Iran deal and to reimpose sanctions on the Islamic Republic, which could also affect the European companies working there.

The Brent crude oil price has already hit $80 per barrel, its highest since November 2014, following Total's announcement that its €40-million gas project in Iran will be scrapped unless the company is exempt from the US' looming anti-Iran sanctions.