Crude Summit: Refiners see politics as top risk: AFPM

The head of a top US refinery-industry lobbying group today named political risk as the top potential market disruption facing the industry, pointing to proposals by Democratic presidential candidates.

The fate of the industry hangs in the balance of this year's election, Chet Thompson, chief executive of the American Fuel and Petrochemical Manufacturers (AFPM) said today at panel on market disrupters at the Argus Americas Crude Summit in Houston, Texas.

"It's indisputable that you cannot have a bigger diametrically opposed position than the Trump administration on one hand and those [Democrats] running for president on the other," Thompson said.

Leading Democratic presidential candidates are promoting restrictions on the oil sector as a way of fighting climate change. US senators Bernie Sanders (I-Vermont) and Elizabeth Warren (D-Massachusetts) have proposed complete electrification of the US transportation sector by 2030, which could have a major impact on US demand for gasoline and other refined products.

"If you look at every major [Democratic] candidate running for president, none of them are big fans of the folks in this room," said Thompson, whose organization represents big refiners such as Valero and PBF Energy.

Thompson also pointed to Corporate Average Fuel Economy (CAFE) standards set by the administration of former President Barack Obama that would require the US vehicle fleet to average 54.5 mpg by 2040. Thompson called the Obama-era CAFE standards "an [electric vehicle] mandate by another name," because electric vehicles would need to comprise 40pc of the market to attain the fuel efficiency standard.

Another potential market disrupter is the International Maritime Organization (IMO) 0.5pc sulphur marine fuel emissions limit that went into effect on 1 January, but the impact has been muted so far, said Andy Lipow, president of Lipow Oil Associates.

Though the IMO rules were expected to cause prices for heavy, sour crude to weaken relative to light, sweet grades, "we really have yet to see a very significant widening of the sweet-to-sour differential," Lipow said. Some of the strength in heavy, sour crudes can be attributed to sanctions on Venezuela and Iran that took those grades off the market, he said.

"I don't think IMO is over yet," Lipow said.

Another market disrupter has been a shift in global oil demand growth, said Michael Tran, managing director of global energy strategy at RBC Capital Markets.

Crude demand peaked in OECD nations in 2008, and Asian countries have driven the lion's share of growth in the last 5-10 years, Tran said. Demand growth from a very small geographical subset of nations like China and Thailand are driving global oil shipments, requiring larger flows of crude tankers to Asian ports.

"The historical rules of global trade are being rewritten in real time right now," Tran said.

By Chris Baltimore