Refiners slump as Trump looks to slow-roll shipping fuel rules

Bloomberg

US refiners are getting stung by President Donald Trump’s efforts to keep consumer prices from rising in the run up to the 2020 election.
The Trump administration is seeking to slow the implementation in 2020 of tighter fuel restrictions on the global shipping industry. The rules, which would slash by more than 80 percent the sulfur allowed in fuel burned by the biggest cargo ships, are expected to increase the cost to move everything from soybeans to Apple iPhones across the oceans, with some of that cost potentially passed on to consumers. Shares of refiners slumped the most in over two years.
The move risks alienating an industry that supported Trump, and which stands to gain from the increase in demand for cleaner-burning diesel fuel. US refineries are more sophisticated than many competitors in other parts of the world, and American companies have invested billions in upgrading their facilities to produce fuel that meets the new rules. It would be the second setback for refiners this month, after Trump decided to allow gas stations to sell fuel with 15 percent ethanol all year.
“The US refining industry has been preparing for IMO 2020 for over a decade and has made substantial investments to ensure that we can timely supply US and global marine customers with compliant fuel, Chet Thompson, president of the American Fuel and Petrochemical Manufacturers trade group, wrote in an email. “Altering the implementation schedule this late in the game — to the extent that this is even legally possible — is a bad idea and could undermine US investments.”
Analysts have said the rules, commonly referred to as IMO 2020, would increase demand for diesel fuel, sending prices higher. Bank of America Merrill Lynch analysts said in early October that demand for diesel may increase by as much as 1.4 million barrels a day. Shipping industry trade groups have pressed for a phased-in start to the new rules.

‘Experience-Building’
The International Maritime Organisation’s Marine Environment Protection Committee is scheduled to hold meetings next week in London. The panel is expected to adopt a ban for ships to carry high-sulfur fuel, a move that may make the IMO’s wider sulfur curbs more effective.
The US will attend the meeting to work on the “experience-building phase” proposed by a number of countries and industry groups and led by the Marshall Islands, according to Lisa Novak, a spokesperson for the US Coast Guard. Such a move would “best facilitate the implementation of the 2020 sulphur cap,” she said in a statement.
“This is a fairly typical story of Washington coming to the party six months late,” said James Lucier, managing director of Capital Alpha Partners. “Financial markets analysts have been focused on this issue since early spring. The administration does not have a lot of good options at this point. Jawboning may be the best that they can do.”
It’s unclear how much the Trump administration would be able to slow or change the implementation of the rules, given their global adoption.