Investigation of the Effect of the Environmental law of the IMO on the Price Fluctuation of the Benchmark Crude of the Mediterranean Region

The International Maritime Organization (IMO) has enacted restrictive laws to reduce environmental pollution from burning sulfur in ship fuel. With a planned effective date of January 1, 2020, the IMO’s new regulations limit the sulfur content in marine fuels that ocean-going vessels use to 0.5% by weight. The IMO adopted the plan for this policy change in 2016 reaffirmed an implementation date of 2020. High-sulfur fuel oil is an important component of ships' fuel consumption, and demand for it is 3 million barrels per day. Therefore, it can be understood that the demand and price for this fuel oil will decrease (EIA, 2019). The Mediterranean regional market is one of several international physical global oil markets. Benchmark crude, which has a high sulfur content, is Urals crude oil in this market, and benchmark crude, which has a lower sulfur content and higher quality than other crude oils, is Brent in this market. Brent and Urals are used as a benchmark for the pricing of other crude oil in the Mediterranean market. Products made from sour crude oil have a lot of sulfur and products made from sweet crude oil have low sulfur content. Therefore, the demand for sour crude oil is declining also it is not economically viable to desulfurize the product compared to the production of low-sulfur products (Argus, 2019). In the present study, two questions are answered: What effects does IMO law have on the fluctuations in the price of crude oil in the region? Also, what is the effects of low-sulfur and high-sulfur oil products on oil prices?

Theoretical Frame work:

One of the important issues in the field of refining growth is the ability to adapt their production operations to the current state of crack spreads and the ability to respond to demands that are sometimes seasonal and companies can change the production process and a widely used issue in the oil and product refining industry. It is up to them to sell their oil quickly to grow their incomes. Refineries are always exposed to rising crude oil prices and falling commodity prices, which, according to various strategies, increase their profits and reduce the risk of these fluctuations (Edward, 2009).

Since 1988 Brent has been known as the benchmark, and still used for pricing (Salvatore, 2012). One of the most widely used issues in the oil refining and petroleum products industry is crack spread, which points to the difference in the price of a barrel of refinery production and a barrel of crude oil in the study area. Therefore, the higher the difference between the prices of the two, the higher theNetback means net return, and its application is the pricing of crude oil based on a single shipment of products. To calculate the netbook value, we must first calculate the "gross product value" and then deduct the shipping cost to the refinery, the refining cost, and other related costs to refine it (Kameli, 2009).IMO is the only organization dedicated entirely to maritime affairs and a regulatory body in the field of ship fuel and sulfur pollution in marine fuels, enforces its laws to reduce these pollutions, and under the new law. Most of this fuel is high-sulfur fuel oil. According to the results, with the increase in the price difference between two products of high-sulfur fuel oil and low-sulfur fuel oil due to increased demand for low-sulfur fuel oil, the price of Brent crude oil will grow, but it has the opposite effect on Urals crude oil. It reduces its price. The virtual variable in the model, which shows the effect of the decision to apply the law from mid-2016 to 2020. Brent crude oil will be directly affected by the law, and its price will rise, and its price will be reduced by the difference between low-sulfur and high-sulfur fuel oil products. The price of crude oil in the Urals index is falling through the direct impact of the law, and with rising commodity prices, the price of crude oil in the Urals index is rising. The crude index of the Brent index is a measure of the price of crude oil in the Mediterranean. Therefore, with the increase in its price, the price of Urals oil will also increase. The turmoil, shocks and shocks caused by the sulfur restriction law first boosted Brent crude oil prices and, given the escalation of Brent crude oil market turmoil, the turbulent crude oil market is exacerbating the downturn in the Mediterranean market.

This could encourage maritime transport companies to use alternative fuels, but this will increase the ship's fuel costs. The cost of investing in new technologies for refining fuel oil and desulfurization is very high and is beyond the reach of many high-sulfur fuel oil producing countries. The ships have never used a scrubber for two reasons. First, the installation of scrubber equipment is expensive, and if the demand for it increases, the manufacturing companies may not be able to provide it, and the demand will increase sharply, which will increase the price of scrubbers again. Scrubbers have never been extensively tested and may not fully disinfect sulfur and if refineries decide to produce low-sulfur fuel, there is no need to use scrubbers. Researchers have suggested that low-tech countries such as Iran, whose production is dominated by distillation towers such as furnace oil, could consider combining sour crude oil with water. Water increases fuel efficiency in combustion operations. This has been done by Sheila Company (Arshi, 2018).