Butterfly effect: Low EU river stirs fuel market 10,000 km away in Singapore

November 9, 2018 | By | Reply More

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A couple sit on their camping chairs amid the river bed of the dried out Rhine near Bacharach (Reuters Pic)
SINGAPORE: Low water levels on the Rhine
river have caused a fuel supply deficit in parts of Europe's
industrial heartlands that is sucking up cargoes from more than
10,000 km away in Singapore.
Following a long, scorching summer, water levels on the
Rhine - a key commodity shipping lane connecting industrial
centres in Switzerland, Germany, France and the Netherlands to
major seaports - fell to record lows, limiting the transport of
coal, steel, grains and fuel.
That has created a shortage of heating oil heading into the
European winter, pushing up the market and triggering a search
for supplies from as far away as Southeast Asia, where there is
ample fuel and gasoil prices are low.
Northwest European prices for gasoil hit a record
US$35-per-tonne premium over Singapore values for
November fuel deliveries, and December premiums are still above
US$20 a tonne. That means gasoil could be pulled into Europe from
Southeast Asia via arbitrage trades through the end of the year.
"The wide arb means it's possible to shift gasoil to the
West (Europe) at a profit," said Sukrit Vijayakar, director of
Indian energy consultancy Trifecta, adding that the situation
stemmed from the low Rhine water levels and Asian refineries
coming out of turnarounds.
The arbitrage to Europe from Asia is usually workable when
the price spread is at least US$15-US$18 a tonne. Many Asian
refineries have just come out of maintenance, or turnarounds,
increasing the region's availability of fuels like gasoil.
Gasoil inventories held in the Amsterdam-Rotterdam-Antwerp
(ARA) refining and storage hub  fell for the fourth
straight week to 2.4 million tonnes, the lowest volume since
mid-July this year, according to data from Dutch consultancy PJK
By refilling ARA stocks with gasoil, including from Asia,
traders said they hope to be able to ship gasoil up the river as
soon as water levels recover.
Market Distortions 
Some meteorologists expect low water levels to last until
January, however, which may mean a continuation of the blockage
and ongoing market distortions.
As a result, European traders may start exporting gasoil out
of the region to offset arbitrage volumes into ARA from Asia.
"It is one thing to ship the distillates from Singapore to
Europe. But it will not reach the end-customer as long as ship
traffic is constrained due to low water levels of the Rhine and
other rivers," said Carsten Fritsch, a commodity analyst at
Germany's Commerzbank.
"German retail gasoline and heating oil prices are very high
as a result ... No visible improvement is in sight here in the
near future, according to German weather forecasts," he said.
Europe typically starts to stockpile gasoil, which is used
for heating in the region, ahead of the cold winter months.
Asian refiners, though, must act fast to serve the European
demand window, as American and also Russian suppliers are also
eying the opportunity.
"Comparing Asian refiners with their US counterparts, the
latter stand a better chance to go to Europe as freight rates
are cheaper and the voyage time is very much shorter," one
trader in Singapore said, declining to be named as she was not
allowed to talk in public about commercial operations.
Despite America's advantage over Asia to supply Europe, ship
tracking data in Refinitiv Eikon shows one tanker, the Diva,
carrying gasoil from Southeast Asia to Europe.
The 37,000 tonne tanker is currently in the Mediterranean
and expected to arrive at Antwerp on Nov. 16.
"If this arb window stays open, I'd expect more such routes
to be fixed next week," said a Singapore-based tanker charterer,
also declining to be named.
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