Time is ticking away to sign a Brexit deal, and the European gasoline market is bracing itself in case it has to reshuffle trade flows between the continent and the UK.

If the fishing rights of trawlermen, among other issues, does scupper a free trade agreement, sizeable volumes of gasoline that trades across the English Channel every year will need to find new homes.

The odds on a no deal Brexit have increased to 45%, according to trade credit insurers Euler Hermes. Unless Brussels and Westminster can break the deadlock in negotiations, the UK will fall out of the customs union, whereby EU countries agree not to charge tariffs on each other’s goods.

Many oil products, such as crude and diesel, are already zero-rated for customs duties regardless of origin. But the EU Common External Tariff (CET) for road fuel gasoline, which is termed motor spirit, is set at 4.7%.

In May, the UK’s revised import tariff scheme, known as Global Tariff (UKGT) set a 4% duty on gasoline imports from January 1, 2021.

Both the UK and the EU produces more gasoline than they need domestically, and if there is no trade deal, the motorist should not see any significant bottlenecks or shortages that could impact the pump price, said Philip Jones-Lux, an analyst at Austrian-based analysts JBC Energy. But he does expect to see the current gasoline trade drying up.

“The UK is net-long gasoline, with just under half of gasoline exports heading to destinations in the EU,” said Jones-Lux. “Much of the other half (around 55,000 b/d on average in recent years) goes to the US, with these volumes coming from US-owned refineries in Humber (P66) and Pembroke (Valero). As such, in terms of the impact on UK refiners, it will be highly dependent on where those refineries tend to export their gasoline to.”

Gasoline flows from the Antwerp, Rotterdam and Amsterdam (ARA) trading hub fill the gap in local deficiencies in the UK in terms of volume or quality in London and the south east of the country, Jones-Lux added.

In the other direction, the ARA hub provides a useful outlet for the Stanlow and Humber refineries to sell excess gasoline blending components into.

The UK exported 9.46 million metric tons (78.8 million barrels) of gasoline last year, and just over half headed into the EU, although some of these barrels are stored in bonded warehouses for export to other parts of the world. The Netherlands was the top destination with 3.56 million mt of exports, followed by the US with 2.95 million mt, and third was Belgium with 1.02 million mt.

Meanwhile, European countries exported 2.9 million metric tons of gasoline to the UK in 2019. Some 955,000 mt came from the Netherlands, 460,000 mt came from Finland, 340,000 mt from Norway, and 310,000 mt from Denmark, according to the digest of UK Energy Statistics (Dukes). Although not a member of the EU, Norway is part of the customs union.

Hedi Grati, head of European/CIS refining research at IHS Markit, expects two outcomes in a no deal scenario.

“First, UK refiners that produce UK-spec product will do everything they can to maximize UK sales, backing out imports, for instance those that still hit the Thames Valley [in the UK], Secondly, flows that end up in ARA today, usually non-UK spec product anyway, are more likely to flow directly to export markets.”

While most other main oil products are already zero rated for import duties, the British may notice their heating oil bills rising next year.

The UK has a huge deficit in middle distillate oil products, with its six refineries producing far less diesel, jet and kerosene than it needs domestically.

Last year, the UK consumed 3.4 million mt of kerosene-type burning oil, but the UK’s six refineries only produced 2 million mt of the product, according to data from the UK Department for Business, Energy and Industrial Strategy. The UK imported 425,000 mt of the burning oil from the Netherlands.

“Our imports of it (kerosene) will be subject to a 4% tariff under the UK General Tariffs,” noted Jamie Baker, director of external relations at the UK Petroleum Industry Association.

“Kerosene is a middle distillate whereas gasoline comes from the lighter end of the barrel so one into the other is unlikely to be all that easy, perhaps as shown by the current large export volumes of gasoline versus large imports of middle distillates (diesel, aviation and domestic kerosene),” Baker said.

Trade talks between the UK and the EU have stalled with less than two months to go until the end of the Brexit transition period, but the negotiations are ongoing and will likely go down to the wire.

Euler Hermes still expects a free trade deal will be signed in mid-November because the two sides have too much to lose, especially amid the Covid-19 impact.

The UK would see a 5% drop in gross domestic product, a jump in import prices fueling inflation, and a 15% drop in annual exports, the credit insurer forecasts.

But they calculate that Germany could lose as much as €8.2 billion of its exports to the UK in value, the Netherlands will lose €4.8 billion, and France would lose €3.6 billion, Belgium would lose €3.15 billion, Italy would lose €2.6 billion, Norway and Spain would lose around €2.1 billion each, Ireland would lose €1.4 billion, Poland would lose €1.35 billion, Sweden would lose €800 million, Denmark would lose €740 million, and the Czech Republic would lose €700 million.

Each day, OPIS editors canvass the market for hard-to-track delivered premiums into ports across Europe. They also draw on exclusive shipping data for supply insight that covers import volumes into Europe, identifying key dynamics behind price changes. This insight and price transparency for the European spot middle distillates market is delivered daily in the OPIS European Jet, Diesel & Gasoil Report. If you don’t already subscribe, download a sample copy here – and then request a free trial here.