That demand will grow by roughly another 1.5 million barrels a day due to tighter pollution rules in the shipping industry, Morgan Stanley projects.
In 2020, the International Maritime Organization will enforce new emissions standards that will require ships to either install equipment to scrub pollutants from engines or use cleaner-burning low-sulfur fuel. Morgan Stanley says most shippers will opt for the latter, effectively shifting demand from other fuel types to distillates.
Meanwhile, most of the growth in global oil production is coming from natural gas liquids and condensates, a type of super light oil. That’s a problem because neither of those liquids are used to make middle distillates, Morgan Stanley says.
According to the bank’s estimates, global crude oil output would need to grow by 5.7 million barrels a day by 2020 to meet growing distillate consumption. Morgan Stanley does not think that’s possible.
“We see global crude production re-accelerating again, but falling well short of this level. Since 1984, crude oil production growth over a 3-year period has reached this level only once,” Rats said.
On Wednesday, the International Energy Agency said it expects oil from countries outside OPEC to grow by nearly 1.9 million barrels a day this year.
The crude shortfall will help push gasoil prices to about $850 per ton, or 25 percent to 30 percent above today’s levels, Morgan Stanley projects. That will consequently push Brent to $90 a barrel.