Rhine's Low Level Seen Threatening European Fuel Price Spike

(Bloomberg) -- Historically low water levels on the Rhine River are set to limit cargo flows even further, potentially boosting European heating oil prices at a critical time of year, according to JBC Energy.

“Further shipping restrictions are expected on inland barge routes along the Rhine corridor,” as the water subsides, the Vienna-based researcher said in a note to clients on Monday. Heating oil prices in Northwest Europe “will be vulnerable to spikes over the next couple of months” as deliveries are delayed to inland markets.

The barge clearance level at Kaub, Germany, a bottleneck point west of Frankfurt, is now near 25 centimeters, the lowest since at least 2006, according to data from PJK International. Barges need to have enough clearance in the water to prevent from running aground.

Rhine's Low Level Seen Threatening European Fuel Price Spike

Water levels on the Rhine -- one of Europe’s most vital water routes for industrial traffic like fuel, coal, chemicals and raw materials -- are dropping just at the time of year when cold weather approaches and the continent is increasingly dependent on heating oil. The river snakes its way through parts of Switzerland, Germany and the Netherlands, and the diminished barge flows have resulted in a buildup of inventories near the river’s mouth.

Consumers in Germany who did not replenish their home heating oil stores in recent months could be forced to pay higher costs if the weather turns cold on short notice, according to Jonathan Leitch, research director for refining and oil product markets at Wood Mackenzie in London.

“If there is a cold snap people with low domestic stock levels are going to have to pay up,” he said by phone.

Fuel Inventories

The situation in Switzerland is reaching a “critical” stage, and the country may have to release strategic fuel supplies during the winter if it does not improve, researcher Petromatrix GmbH said in a note last week.

Chemical producer BASF SE has curbed output at its Ludwigshafen, Germany, complex due to the shipping limitations. Steelmaker ThyssenKrupp AG last week declared force majeure due to the river’s low level, which will severely disrupt the supply of materials to production plants, S&P Global Platts reported.

Diesel and gasoil inventories in the Amsterdam-Rotterdam-Antwerp trading hub, near where the Rhine flows into the North Sea, earlier this month reached their highest level since February, though they dropped slightly last week, PJK data show. The stockpiles remain above their 5-year seasonal average.

The inventory glut may prompt a rush of deliveries when the water level recovers, according to Wood Mackenzie’s Leitch.

“There is a lot of pent-up demand,” he said. “As soon as water levels recover there will be a sharp bounce-back in inland stockpiles as everyone will be trying to send as much product to Germany as they can.”

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