Hedge fund BBL goes bullish on diesel, bearish on oil for 2019

By Julia Payne and Ron Bousso

LONDON (Reuters) - The market has underestimated the impact of a change in marine fuel oil rules that will turn diesel into 2019's big winner, while crude prices will cool down to around $65 a barrel, a top hedge fund manager told Reuters.

Growing concerns over global economic growth and trade wars are expected to weigh on oil prices next year, New York-based BBL Commodities founder Jonathan Goldberg told the Reuters Global Commodities Summit.

Crude oil recently rose to a four-year high on the back of declining Venezuelan output and an expected major hit on Iranian exports once U.S. sanctions come into force next week.

But while Goldberg sees growing downward pressure on crude prices, he believes the diesel rally is just starting.

The shipping industry, and indeed the oil markets, are facing one of the biggest changes in decades in 2020 when the International Maritime Organization (IMO) starts implementing a reduction in the amount of sulphur in marine fuel.

"This is the biggest thing to hit the oil market since 2014, potentially it is a bigger deal," Goldberg said of the upcoming IMO regulation, referring to OPEC's decision four years ago to flood the market with oil in response to rising U.S. production.

"The market is mis-pricing the impact of this by a degree that may be greater than the way the market mis-priced oil in 2014."

Global oil prices crashed in 2014 after OPEC's decision to ramp up output, with prices dropping from $100 a barrel to below $30 a barrel in early 2016.

The new rules will ban ships from using fuels with a sulphur content above 0.5 percent, compared with 3.5 percent now, which is expected to sharply increase demand for diesel oil while depressing the high sulphur marine fuel oil market.

Goldberg, whose fund is working on specific investment vehicles that centre around IMO exposure, said he did not expect the Trump administration to delay the roll-out of the regulations, especially after the IMO reiterated the original timeline last week.

He said next year's oil price is likely to settle around $65 a barrel, down over $10 from current levels.

Despite shrinking Venezuelan and Iranian output, Goldberg sees ample spare production capacity in Saudi Arabia, Kuwait, Brazil and Russia.

At the same time, U.S. shale output is expected to surge by 1.3 million bpd next year and hit international markets as new pipelines come online.

"The challenges in the market are non-OPEC supply and a demand outlook that is not terrible but is worse than it was in 2017, 2018," he said. "We now have slower growth and a stronger dollar, and that's hitting demand."

In terms of global stockpiling, Goldberg sees a 300,000 barrel per day build on average next year.

(Reporting By Julia Payne; Additional reporting by Christopher Johnson; Editing by Jan Harvey)