With the government previously anticipating the closure of two UK refineries following a WTO Brexit, the tanker market in the region is bracing for changes. It is unclear however, this will mean a pure slow down in tanker demand or if subsequent events will actually boost demand for long-haul voyages.
UK REFINERIES would likely be affected in the event of a Brexit on World Trade Organisation terms, but the implications for the tanker market are less clear, according to Gibson Shipbroker.
While the UK government has committed to departing the European Union on October 31, the two sides have yet to reach an agreement about their post-Brexit trade relationship and the UK has signalled it is willing to exit the union without a deal.
Aside from the well documented concerns this prospect has caused to the ports and logistics sector, which has long called for a deal that would prevent trade disruptions, the fuels market may also turmoil as trade patterns in the region could change.
Gibson notes that thus far in 2019 57% of UK clean petroleum product exports have gone to the EU.
WTO terms would likely see the EU impose a 4.7% tariff, which applies to fuel imports from non-EU countries. The UK will likely have to set a 0% tariff for EU imports in compliance with rules from the WTO, which require equal tariffs on the same products from different origins.
This predicament could on the one hand undermine British refineries, whose products will become less attractive in the EU market. On the other hand, Gibson suggests it may be more profitable to push those products on to other regions, like the US or West Africa, depending on the bilateral deals that emerge after Brexit.
“In effect, these inefficiencies of supply could create increased tanker demand,” Gibson said.
But in the alternative scenario the UK would cut back on imports and exports altogether as its refineries become less competitive and production becomes more geared towards domestic consumption.
“Analyst views are mixed; however, reduced trading flexibility would almost certainly impact margins, and potentially force refining runs lower,” Gibson reported.
Leaked government documents August forecast that two of the UK’s refineries would face closure from a WTO Brexit.