With Brexit less than 60 days away the potential impact on the tanker trade in North West Europe remains uncertain, according to a top UK shipbroker.
“Little has been said about the impact on the wider international tanker market, with the UK being a relatively small piece of global tanker trade,” said Gibson Shipbrokers in its latest weekly market report.
“However, Brexit will have an impact, most notably on regional trade between the UK and the European Union (EU).”
In the year-to-date, 57% of UK clean petroleum product (CPP) exports have gone to the EU, currently subject to zero tariffs.
However, Gibson says that if the UK crashes out of the EU without a deal, British CPP exports to the EU would be subject to non-EU country tariffs of 4.7%.
“For imports, the UK may consider placing 0% tariffs on fuel imports; however, if it elects to do so for one country, under WTO rules it must do for imports of the same product from all countries,” it said.
“With tariffs being placed on product exports to its biggest market (the EU) and 0% imports likely on fuel imports, the UK refining industry would be placed at a competitive disadvantage, with this likely to impact trade flows.”
As an example, Gibson highlights Valero’s Pembrokeshire based refinery, which has exported just under a quarter of all its products so far this year to Ireland.
“With tariffs being introduced, it may be more competitive for Ireland to source these volumes from the EU,” the shipbroker says.
However, subject to the implementation of bilateral trade deals between the UK and other counterparties, Gibson said it may prove more economical to push UK CPP exports further afield, for example to the US or West Africa.
“In effect these inefficiencies of supply could create increased tanker demand. However, alternatively, a scenario may also evolve whereby the UK reduces both its exports and imports,” it said.
Whilst currently much of the UK’s own product supply is retained, some areas, such as the Thames region tend to get most of their supply from the Belgium and the Netherlands.
“If tariffs are placed on UK exports, then it may prove more profitable to ship barrels coastally, rather than export,” said Gibson.
A leaked government document recently stated that the implications of a no-deal Brexit could force two UK refineries to shut down if tariffs were imposed because it would make them non-competitive compared to facilities within the EU.
“Analyst views are mixed; however, reduced trading flexibility would almost certainly impact margins, and potentially force refining runs lower," the broker said.
