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This Week in Petroleum

Release Date: September 27, 2023 Next Release Date: October 4, 2023

Notice: Changes to August 31, 2023 Release of Petroleum Supply Monthly and Petroleum Supply Annual
We added new data labeled Transfers to crude oil supply to national and regional volumetric balance tables for petroleum and biofuels beginning with data released on August 31, 2023. Transfers to crude oil supply include barrels of unfinished oils (refinery feedstocks) and natural gas liquids that we identified as being added to crude oil supply by blending. We will make changes to account for these transfers in the Weekly Petroleum Status Report before the end of the year.

Shipping rates reach record highs as historic drought at the Panama Canal causes delays

Delays at the Panama Canal because of low water levels are causing very large gas carrier (VLGC) rates to reach record highs, increasing the cost of shipping liquefied petroleum gas (LPG). The Panama Canal is a major energy transit point, and water levels at its crucial Gatún Lake were below the 10-year (2013–2022) range in July and August (Figure 1). According to the Panama Canal Authority (APC), water levels are the lowest since at least 1995–the APC publishes no earlier data. The APC forecasts water levels at Gatún Lake to remain below the 10-year range through October and November.

Gatún Lake is the artificial lake that vessels transit between Atlantic and Pacific locks and holds the water supply needed to power and operate the lock systems. In response to the low water levels, the APC enacted a series of water-saving measures to try to decrease the effects the extended dry season and lower-than-normal precipitation are having on the Panama Canal.

Figure 1. Gatún Lake water levels

VLGC rates have reached record highs for two of the three benchmark routes due to these delays at the Panama Canal (Figure 2). Rates for VLGCs, which carry primarily propane (and to a lesser extent, butane), are highly seasonal. The rates, which represent the cost of shipping per ton, typically increase in the winter when demand for propane as a heating fuel is greatest and decrease in the summer when heating demand subsides.

Petrochemical demand for propane as a feedstock also affects VLGC rates. Higher demand for U.S. propane in East Asia is also contributing to the delays at the Panama Canal because increased vessel demand on this route creates a larger chokepoint. VLGC rates on the Houston–Chiba route, which uses the Panama Canal, reached $235 per ton for the week ending September 22, the highest since at least 2016, when rates were first published. Rates are also increasing because of a widening Houston–East Asia arbitrage.

Figure 2. Weekly VLGC rates

VLGC rates increased not only on routes that transit the Panama Canal but also on the Ras Tanura–Chiba route, which also reached a record high and doesn’t use the Panama Canal. The Houston–Flushing route, which is a transatlantic crossing, reached its highest rate since the week of December 23, 2022. Delays at the Panama Canal increase the number of tankers waiting to cross the canal and decrease the number of vessels available in the market to carry cargo and meet demand, pushing rates higher everywhere. VLGC rates are typically higher than rates for smaller petroleum product carriers because the base toll to transit the canal is about $300,000 for a VLGC to cross the newer, larger Neopanamax locks. A smaller gas carrier, petroleum product tanker, or chemical tanker transiting the older, smaller Panamax locks has a base toll of $60,000.

Because of transit restrictions arising from low water levels, the number of vessels allowed to transit the canal was limited to 32 per day on July 30, 2023, down from its typical 36, with 10 slots allocated for the Neopanamax locks and 22 slots for the Panamax locks. The transit restrictions have resulted in long delays; and in August more than 160 vessels waited to transit the canal. In August, Neopanamax sized ships traveling southbound waited up to 18 days and those traveling northbound waited up to 17 days (Figure 3). Ships waited for up to 18 days traveling southbound and northbound on the Panamax locks. The unpredictability of waiting days has required that some vessels, especially VLGCs, return empty (ballast) from East Asia back to the U.S. Gulf Coast via alternative routes such as the Suez Canal or around the Cape of Good Hope, according to ship tracking data.

Figure 3. Weekly waiting days at the Panama Canal

The APC also restricted vessel drafts – the distance between the waterline and the deepest point of the boat – for Neopanamax vessels, reducing the amount of cargo a ship can carry. In the energy sector, this primarily affects petrochemical derivatives such as polyethylene or polypropylene, products derived from ethane, propane, and naphtha, which are shipped on containerships and bulk carriers. A six-foot lower draft can result in a 40% reduction in cargo, according to analysis from Bloomberg. VLGCs and very large ethane carriers (VLECs) are among the smallest vessels that transit the Neopanamax locks and were not affected by the draft restrictions.

The Panama Canal is important for trade between the United States and East Asia and the west coast of South America. Vessels carrying petroleum products, hydrocarbon gas liquids (HGLs), and chemicals make up one-third of trade transiting the canal, with chemical tankers making the most transits and HGL vessels (including VLGCs and VLECs) carrying the most volumetric cargo (Figure 4). Nearly all HGL trade through the Panama Canal travels from the U.S. Gulf Coast to Asia. Propane accounts for nearly 60% of U.S. HGL exports, and U.S. ethane and butanes exports each account for 17% of the share of exports. In 2022, the top destinations for U.S. Gulf Coast exports of propane were Japan, China, and South Korea, and the top destination for butanes was China, according to Vortexa. VLGCs account for nearly 83% of the propane and butane trade that transit the canal. U.S. ethane exports are mostly fixed on long-term supply contracts, with most exports going to China and India on VLECs. The VLECs that make regular voyages to China take the Panama Canal, and the ones going to India take the Suez Canal.

Figure 4: Product flows through the Panama Canal (2020-2022)

Petroleum product tankers carrying distillate, gasoline, and jet fuel typically cross the Panama Canal via the smaller, older Panamax locks in ships that are specially designed to cross the Panamax locks in terms of draft, beam (width), and length. Most U.S. clean petroleum product exports that transit through the Panama Canal from the U.S. Gulf Coast and arrive in regions such as the west coast of South America and Central America using Long Range 1 or Medium Range vessels. Commonly used vessels to transport crude oil are too large to use the expanded Panama Canal. Instead, greater volumes of U.S. crude oil exports are more likely to go to destinations in Asia through the Suez Canal or around the Cape of Good Hope and to destinations in Europe using transatlantic routes.

For questions about This Week in Petroleum, contact the Petroleum and Liquid Fuels Markets Team at 202-586-5840.

Tags: chokepoints, exports/imports, HGL (hydrocarbon gas liquid), marine transportation, petroleum products

  • Retail prices (dollars per gallon)

Gasoline price graphs
  Retail prices Change from last
Gasoline 09/25/23 Week Year
Click to chart this seriesU.S. 3.837 -0.041down-arrow 0.126up-arrow
Click to chart this seriesEast Coast 3.598 -0.056down-arrow 0.190up-arrow
Click to chart this seriesMidwest 3.639 -0.071down-arrow 0.008up-arrow
Click to chart this seriesGulf Coast 3.351 -0.080down-arrow 0.233up-arrow
Click to chart this seriesRocky Mountain 3.996 -0.075down-arrow 0.077up-arrow
Click to chart this seriesWest Coast 5.258 0.095up-arrow 0.086up-arrow
Diesel fuel price graphs
  Retail prices Change from last
Diesel 09/25/23 Week Year
Click to chart this seriesU.S. 4.586 -0.047down-arrow -0.303down-arrow
Click to chart this seriesEast Coast 4.525 -0.012down-arrow -0.311down-arrow
Click to chart this seriesMidwest 4.439 -0.053down-arrow -0.442down-arrow
Click to chart this seriesGulf Coast 4.281 -0.071down-arrow -0.342down-arrow
Click to chart this seriesRocky Mountain 4.801 -0.063down-arrow -0.084down-arrow
Click to chart this seriesWest Coast 5.687 -0.008down-arrow 0.120up-arrow
  • Futures prices (dollars per gallon*)

Futures price graphs
  Futures prices Change from last
  09/22/23 Week Year
Click to chart this seriesCrude oil 90.03 -0.74down-arrow 11.29up-arrow
Click to chart this seriesGasoline 2.562 -0.146down-arrow 0.179up-arrow
Click to chart this seriesHeating oil 3.306 -0.077down-arrow 0.069up-arrow
*Note: Crude oil price in dollars per barrel.
  • Stocks (million barrels)

Stock price graphs
  Stocks Change from last
  09/22/23 Week Year
Click to chart this seriesCrude oil 416.3 -2.2down-arrow -14.3down-arrow
Click to chart this seriesGasoline 220.5 1.0up-arrow 8.3up-arrow
Click to chart this seriesDistillate 120.1 0.4up-arrow 5.7up-arrow
Click to chart this seriesPropane 101.433 0.731up-arrow 18.605up-arrow