Valero's Conference Call Had Little Good News On The Impact Of IMO 2020

The scenarios laid out by Valero officials on their third-quarter earnings call painted a picture of a market that already has begun to make moves linked to IMO 2020.

Diesel spreads relative to benchmarks like dated Brent crude have been wider over the past several weeks. Gary Simmons, the senior vice president of supply, international operations and systems optimization for Valero, the largest independent refiner in the U.S., said IMO 2020 almost certainly has a role in that movement. 

"It's pretty difficult to be able to determine how much the strength... is IMO- related and how much is just fundamentals and supply," Simmons said on a conference call with analysts following the release of Valero's third-quarter earnings. "But we're certainly seeing a lot of indications in the market of IMO starting to impact it. The things I would point to, the diesel curve is just continu[ing] to shift higher the closer we get to the January 2020 date." (The transcript of the call was provided by SeekingAlpha).

A simple crack spread of front month CME Brent vs. CME ultra-low-sulfur diesel (ULSD) averaged $16.44/barrel in the first six months of the year. Since October 1, it has averaged $21.66/b and has been above $22 several times. 

IMO 2020 is a rule to be implemented by the United Nations' International Maritime Organization. It mandates that the marine fuels that power ships have no more than 0.5% sulfur, down significantly from the current rule of 3.5% sulfur. 

Two diesel-based solutions m....

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