US Refiners Investing In Low Sulfur Fuel Production -- March 27, 2019

For newbies:

• US refiners, back in the day, back in the 50s and 60s: optimized for light, sweet oil, for WTI
• then, the Mideast, and OPEC: refiners, over time, invested in refineries to optimize refining heavy oil
• in the late 90s, early 2000s: heavy oil -- very heavy oil -- discovered in western Canada
• early 2000s: US oil companies realized they could replace OPEC oil with western hemisphere oil (western Canada, Mexico, Venezuela); optimized refineries to handle heavy oil; cost? $6 billion;
• November 6, 2015, remarkably that Reuters story is still on the net, "Obama Kills The Keystone Pipeline"
• 2015 - 2019: Mexican production declines; Venezuela implodes; 
• 2018: Canadians can't get their act together -- western Canadian oil is landlocked -- TransMountain; Line 3; and, Keystone XL all killed, delayed, in limbo; Alberta limits Canadian production

And, here we are.

Along the way, I suggested the US refiners, after investing $6 billion to "convert" from light oil to heavy oil, weren't interested in converting again, back to light oil. Making things worse: President Obama and president-elect-in-waiting Hillary both said they would kill the coal industry and had their sights on US oil.

The refiners jerry-rigged their system, using heavy oil where they could find it, to "balance" their glut of light oil so it could be refined in US refineries along the US Gulf Coast.

Now today, being reported over at oilprice, Refiners around the world have spent $1 billion on upgrading their refineries to handle light oil.

Data points from that article, but let's start with the elephant in the room, or should we say, the whale in the aquarium?

Eearlier this month the International Energy Agency said in its annual Oil 2019 report, “The 2020 IMO marine regulation change is one of the most dramatic ever seen to product specifications, although the shipping and refining industries have had several years notice.”

Exxon says demand for sulfur-rich oil will plummet by 25%.

Losers? Canada, Mexico, Venezuela, OPEC.

Winners? Texas, North Dakota, and points in between.

Now, back to the data points in that linked oilprice article:

• around the world, refiners have spent $1 billion since 2015 (a pittance in the big scheme of things) -- about the time President Obama killed the Keystone XL
• but the investments will continue beyond 2020
• IMO 2020: becomes effective January 1, 2020 -- less than a year from now
• [I may be wrong: analysts worry about an over-supply of light oil]
• refiners currently rushing to capture higher profit margins of middle distillates such as diesel and marine gasooil which have a lower sulfur content, with an anticipated spike in demand later this year

Today:

• WTI: down a percent to $59.32
• Brent crude: down half a percent to $67.14
• OPEC basket: down 3/4th of a percent to $66.19