|05 December, 2019

Goldman expects 2020 oil demand to recover, helped by new fuel rules

The bank expects new IMO rules to provide tailwind to distillate demand in 2020

A Goldman Sachs sign is displayed inside the company's post on the floor of the New York Stock Exchange (NYSE) in New York, U.S., April 18, 2017.

A Goldman Sachs sign is displayed inside the company's post on the floor of the New York Stock Exchange (NYSE) in New York, U.S., April 18, 2017.

REUTERS/Brendan McDermid

Goldman Sachs on Wednesday revised down its oil demand forecast for this year, but expects it to recover in 2020 supported by global economic growth, new maritime rules and more normal weather conditions.

The International Maritime Organization's (IMO) new rules from Jan. 1, 2020 prohibit ships from using fuels containing more than 0.5% sulphur, compared with 3.5% now, unless they are equipped with exhaust-cleaning "scrubbers".

The bank expects new IMO rules to provide tailwind to distillate demand in 2020, and with inventories still well below 5-year average on a days of demand basis, it sees tight distillate environment next year.

"We believe that IMO 2020 will drive higher diesel margins and maintain our 2020 diesel cracks forecast of $20 per barrel from spot levels of $14 per barrel," the bank said in a note dated Dec. 4.

The Wall Street bank, however, revised down its 2019 oil demand forecast to 1 million barrel-per-day (mbpd) from 1.4 mbpd at the start of the year, citing disappointing oil demand due to weaker economic activity, unfavorable weather and trade tensions.

The bank also expects Brent-WTI differentials of $4.50 per barrel in 2020 from year to date levels near $7 per barrel.

"With a reduced outlook for U.S. production growth and increased infrastructure build out in the U.S., we forecast less constructive crude differentials in 2020," it said.

(Reporting by Sumita Layek in Bengaluru; Editing by Christina Fincher) ((Sumita.Layek@thomsonreuters.com; Within U.S. +1 646 223 8780, Outside U.S. +91 8067491638; Reuters Messaging: Sumita.Layek.thomsonreuters.com@reuters.net))

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