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Chevron to Make IMO 2020 Low-Sulfur Fuel Available by Q3-End

Zacks Equity Research

Chevron Corporation CVX intends to bring online a shipping fuel blend — which conforms to the IMO 2020 regulation — by the end of the third quarter, per Reuters. At present, Chevron can make the new fuel blend available for shipping companies for trial purposes and not for continuous purchase.

To reduce pollution from marine vessels — which has increased lately — especially due to a rise in the number of shipping vessels on water, International Maritime Organization or IMO decided to lower the sulfur content in marine fuels. In 2016, the IMO announced the decision to curb sulfur amount in marine fuels to 0.5% from the current cap of 3.5% by 2020, which can significantly reduce greenhouse gas emissions.

The IMO 2020 regulations will allow the ships — which have installed sulphur-cleaning devices (or scrubbers) to cleanse sulfur from dirty fuels — to use high-sulfur fuel. These scrubbers are pretty costly.

There are some concerns in the market regarding this new rule. Although major fuel bunkering ports such as Singapore, Fujairah, Rotterdam and others are expected to have supplies of new low-sulfur fuel blends, availability of the same in smaller ports is yet to be confirmed. The market is under uncertainty regarding the pricing of the new fuel blend. Due to the absence of a proper reference of pricing and standard certification, fuel contracts are not yet signed.

IMO 2020 is expected to have a direct effect on the global refining sector, something which investors are wary of.  The new rule is expected to bring in a sea change at refineries in terms of operations and configurations. While simple refineries with less sophisticated technologies are expected to suffer initially from the change, complex and larger refineries can reap profits from the decision. Companies like Chevron, Royal Dutch Shell plc RDS.A, BP plc BP and Exxon Mobil Corp. XOM are getting ready to rock the market once the regulation sets in.

This new rule will not only reduce pollution, but also change the fuel demand pattern of the shipping industry. Inevitably, the change in supply pattern is expected to be demand driven. All ill-equipped refineries are likely to witness plunging demand for high-sulfur fuels, while complex refineries are poised to experience high demand for low-sulfur fuel products.

Price Performance & Zacks Rank

San Ramon, CA-based Chevron has gained 8.1% year to date compared with 4.4% collective gain of its industry. It currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

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