London — Record high temperatures and a dearth of rain across northwest Europe has seen the cost of transporting oil products through Europe's key inland waterways soar, distorting supply economics into the region's inland markets.
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Barge freight rates costs have surged in recent weeks as Rhine water levels fall to perilously low levels, slowing barge traffic and causing the region to struggle to refill its inland tanks.
Demand for barged oil products including gasoline, propane and heating oil has been hit as a result of rising barge rates.
The low river levels are posing a supply headache in particular for key inland oil consumers Germany and Switzerland, which are seen starting to rely more on train deliveries for their oil products.
Rotterdam-Basel freight rates for 1-5kt barges have been surged dramatically over the past month, hitting an 18-month high of $46.35/mt this week, according to S&P Global Platts estimates.
The high freight costs are offsetting the slip in crude and product prices over the month and also impacting storage economics in central Europe, according to trading sources.
"There has been no increase in buying interest for barges as freight is expensive for barges...you have to take into account transport economics," said a middle distillates trader.
One barge operator said rates were likely to stay high for some time, with more hot, dry weather forecast and barges only able to load a fraction of the maximum loading volumes.
Diesel barges reached a four-month low July 13 and still are lingering around that level, with FOB ARA ULSD barges trading at minus $2/mt this week.
Demand is not particularly strong in the inland diesel barge market anyway, traders said, and the high freight rates are helping to suppressed appetites for diesel barges.
Regional trading activity for gasoline has also slowed of late, with market participants noting that high barge freight costs is dulling demand.
Meanwhile, sentiment in the fuel oil barge market was mixed with some traders saying barge operations have been impacted by the falling water levels on the Rhine.
The 3.5% FOB Rotterdam barges have been strongly backwardated on tighter supply and healthy demand in the region. Bunker traders, however, do not consider the falling Rhine water levels has lent support to bunker premiums.
On the inland propane market, barge trading out of ARA has largely ground to a halt amid difficulty loading on the Rhine for the German market, with trading diverted onto trucks and rail cars, instead.
"The Rhine is a problem," said a market source, "but they do not need the product anyways. [Buyers] are going to wait until it is cooler, when there is water in the Rhine, and when the prices are cheaper."
"Things have not improved. Due to the lack of rain, water levels are going further down," said another market source.
However, the source added that very low demand for propane as a heating fuel, amid high temperatures, has limited the impact on the propane market.
The impact has been felt more on butane barges, market sources said, where petrochemical buyers have typically relied on barge traffic alongside CIF coasters.
Unlike propane, where demand has wilted through the summer, butane has remained competitive against naphtha as an alternative feedstock throughout the spring and summer.
-- Staff Reports, firstname.lastname@example.org
-- Edited by Valarie Jackson, email@example.com