Another potential factor of negative impact in the tanker market can come from the aftermath of a no-deal Brexit. In its latest weekly report, shipbroker Gibson said that “if Boris Johnson gets his way, the ever-impending event that is Brexit will soon be upon us. 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; however, Brexit will have an impact, most notably on regional trade between the UK and EU”.
According to Gibson “for 2019 to date, 57% of UK clean petroleum product (CPP) exports have gone to the EU, currently subject to zero tariffs. However, 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. 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. For example, Valero’s Pembrokeshire based refinery 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. However, subject to the implementation of bilateral trade deals between the UK and other counterparties, 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. 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. 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. Although some refineries such as Total’s Lindsey refinery sell most of their product straight back into the UK. Analyst views are mixed; however, reduced trading flexibility would almost certainly impact margins, and potentially force refining runs lower”, Gibson said.
The shipbroker added that “between now and October 31st, there remains a great deal of uncertainty. Will there be a deal, or no deal? Without a deal, UK refineries will be impacted, to what degree is unknown. Tanker trade will be impacted. However, whilst it may be significant for smaller vessels trading regionally across North West Europe, the impact for the global tanker market will likely be muted”.
Meanwhile, in the crude tanker market this week, Gibson said that “a drip fed VLCC market has allowed rates to ease and allowed the established upward trend of last week to make a U-turn. Rates have taken a hit as the rate of fixing has slowed, allowing Charterers to achieve below last done numbers. Rates in the area have now adjusted to mid – low 60’s for East and high 20’s for West, with the list remaining healthy. For any gains, the market will need to see a higher concentration of cargoes next week. Suezmaxes were comparatively busy in the East this week, but a consistent supply of ballasters has kept rates more subdued than could have been. West rates have crept up to 140 x ws 35 with the East steady at 130 x mid 70’s. Little change is expected next week”, the shipbroker concluded.
