Rhine closure to impact stocks in ARA, but market unfazed

Quantum Commodity Intelligence - The closure of the Rhine following devastating flooding last week has barely impacted oil product differential prices in ARA as a lack of trade on the water has limited price volatility.

Gasoline stocks in ARA are likely to have drawn lower over the week to reach a fresh low for the year after being cut off from supplies from the Miro refinery in Germany, but backwardation in the gasoline barge market has eased rather than widened over the week.

Gasoil and diesel stocks in ARA will likely have risen after traffic on much of the Rhine was stopped, but liquidity in these markets was very thin before the floods.  

"At current water levels, Rhine barges are being prevented from moving gasoil/diesel from ARA to inland Europe and gasoline from inland Europe to ARA," analysts at Facts Global Energy noted. 

But there has been little impact on prices for key oil products in ARA to date. 

Barge freight rates from ARA up the Rhine have not moved in July, data from the barge broker Riverlake shows.

"They could not get much lower," a broker told Quantum last week.  

"There was very little traffic before the Rhine swelled, especially in diesel after two very low (LSGO) expiries in a row."

July Low Sulfur Gasoil futures expired on July 12 with just 554 lots of open interest, or 55,400 mt of ultra-low sulfur diesel (ULSD) for delivery over the second half of the month in ARA.

The previous month, the June Low Sulfur Gasoil futures expiry left just 250 lots, or 25,000 mt of ULSD for delivery, a record low since ULSD became the basis for the future in February 2015.

Ultra-low sulfur diesel barges in ARA have traded in mild contango to the front month distillate futures throughout July, indicating weakness in the market.

Barge freight rates for a distillate barge, carrying 2,500 mt, from Rotterdam to Karlsruhe, where the Miro refinery is situated, were pegged at €10.50/mt Wednesday, the same level as July 1.

Meanwhile, there has been little demand for heating oil products, such as 1000ppm sulfur and 50ppm sulfur gasoil, amid the summer.

The Rhine opened for barge traffic from ARA at the mouth of the river in Holland to Speyer in Germany on Monday, but still remains closed off to traffic from Speyer upwards.

Water levels at Karlsruhe, where the 311,000 bpd Miro refinery, Germany's largest plant, is situated, remain at Mark II levels, which prevents sailing, whereas there are usually a steady stream of gasoline barges flowing.

Backwardation in gasoline barge trade in ARA rallied last Friday morning, July 16, to a recent peak of $10/mt above August paper, but the structure quickly faded to $4/mt in the afternoon and has stayed around those levels this week because of poor arbitrage economics to the US.

Demand for jet barges travelling up the Rhine has also been thin while the aviation market struggles to recover to pre-pandemic levels.

"High stock levels and expected import volumes are keeping a bit of a cap on (prices) still," a broker told Quantum.

The Rhine is expected to remain closed to sailing at Maxau, one of the deepest points, until Friday evening.

Gasoline stocks were already at year lows before the river was closed, according to sources, citing data from analyst Insights Global.

Gasoline stocks drew around 100,000 mt over the week to Thursday (July 15) to 890,000 mt, the lowest this year, and down around 350,000 mt from the same week in 2019 before the Covid pandemic struck.

But diesel and gasoil stocks edged up last week to 19,000 mt to 2.3 million mt, around its average over the last seven weeks, and down around 300,000 mt from levels two years ago.