Release date: October 24, 2018 | Next release date: October 31, 2018
Low water levels on Rhine River disrupt petroleum product shipments ahead of winter
Low water levels on the Rhine River in Europe have resulted in transportation disruptions for shipments of petroleum products by barge, which in turn have resulted in higher freight costs and higher prices in markets upriver, such as southern Germany. These disruptions are occurring at a time when these markets typically build inventories of distillate fuel for space heating ahead of the winter.
The Rhine River, which runs northwest from Switzerland through Germany, France, and the Netherlands into the North Sea, is a major petroleum product transportation corridor. The navigable portions of the river connect the major refinery and petroleum trading centers of Amsterdam and Rotterdam in the Netherlands and Antwerp in Belgium, collectively known as the ARA, to inland markets (Figure 1).
Tanker barges carry petroleum products from the ARA upriver to inland bulk distribution terminals that provide petroleum products to nearby areas. Water levels on the Rhine River fluctuate with the seasonal rainfall, and both high and low water levels can create problems for barges. High water levels on the Rhine may put barges at risk of striking bridges over the river. Low water levels mean barges risk becoming stuck and hitting the river bottom. Within safety and operational constraints, barges adjust the amount of cargo they carry to balance bridge clearance and deep draft restrictions based on water levels. Low water levels mean barges must carry less cargo, increasing the freight rate per unit of cargo.
Water levels on the Rhine River measured at Kaub, Germany, near the Rhine’s midway point, recently reached historical lows. The average water level at Kaub in October was 1.7 feet, compared with the five-year average level of 4.8 feet. The record low water levels in October 2018 are a sharp contrast to the water levels of early 2018 when water levels were higher than 20 feet (Figure 2).
Low water levels on the Rhine since July 2018 have resulted in increased barge freight rates; the estimated rate for a cargo of distillate fuel (heating oil or diesel) from Rotterdam, Netherlands, to Basel, Switzerland, increased from about $5 per barrel (b) in July to more than $35/b in late October. Rates have also increased for delivery to points closer to the ARA; delivery to Duisburg, Germany, is now at more than $4/b, compared with rates of about $1/b in July (Figure 3).
Prices for distillate at distribution terminals (or rack prices) have increased in tandem with the higher freight rates at points upriver. The price of distillate for loading on trucks at Duisburg, Germany, went from a premium of $0.15 per gallon (gal) more than the ARA price in June to a premium of more than $0.20/gal as barge rates moved higher in October. Farther upriver in Karlsruhe, Germany, the same price spread went from about $0.20/gal in June to more than $0.40/gal in October (Figure 4).
Alternatives to shipments on the Rhine River are costly. Europe's petroleum product pipeline infrastructure is not as extensive as in the United States, leaving relatively more expensive transport by rail and long-distance trucking as the only alternatives.
These disruptions come at a time of year when markets upriver of the ARA usually begin to build stocks of heating oil for the winter. Distillate fuel would normally be transported from refineries and terminals in the ARA region upriver on the Rhine, but the low water levels are keeping distillate supplies in the ARA and are partially responsible for recent inventory builds in the ARA region. Independently held distillate stock levels in the ARA rose from 15.7 million barrels at the beginning of July—6.9 million barrels lower than the five-year average—to more than 21.0 million barrels as of October 18, just slightly higher than the five-year average.
Ultimately, weather patterns will determine the duration and severity of the disruption. More precipitation in the Rhine River basin will flow water into the tributaries of the Rhine River, raising water levels downstream. Warmer-than-normal temperatures in the Rhine River valley could also reduce heating oil demand.
U.S. average regular gasoline and diesel prices decrease
The U.S. average regular gasoline retail price decreased nearly 4 cents from last week to $2.84 per gallon on October 22, 2018, up 36 cents from the same time last year. Midwest prices decreased nearly seven cents to $2.69 per gallon, Gulf Coast prices fell nearly five cents to $2.58 per gallon, East Coast prices decreased more than three cents to $2.78 per gallon, and Rocky Mountain prices fell nearly two cents to $2.96 per gallon. West Coast prices increased less than a cent to $3.50 per gallon.
The U.S. average diesel fuel price decreased more than 1 cent from last week to $3.38 per gallon on October 22, 2018, 58 cents higher than a year ago. Gulf Coast prices fell two cents to $3.15 per gallon, Midwest prices decreased nearly two cents to $3.33 per gallon, East Coast prices decreased more than a cent to $3.37 per gallon, and West Coast prices fell nearly a cent to $3.87 per gallon. Rocky Mountain prices increased nearly a cent to $3.41 per gallon.
Propane/propylene inventories decline slightly
U.S. propane/propylene stocks decreased by 0.3 million barrels last week to 82.0 million barrels as of October 19, 2018, 3.9 million barrels (4.5%) lower than the five-year (2013-2017) average inventory level for this same time of year. Midwest and Rocky Mountain/West Coast inventories each decreased by 0.2 million barrels, while East Coast inventories dipped slightly, remaining virtually unchanged. Gulf Coast inventories increased by 0.1 million barrels. Propylene non-fuel-use inventories represented 3.4% of total propane/propylene inventories.
Residential heating fuel prices increase
As of October 22, 2018, residential heating oil prices averaged $3.37 per gallon, almost 1 cent per gallon more than last week and 70 cents per gallon higher than last year’s price at this time. The average wholesale heating oil price for this week is $2.39 per gallon, 1 cent per gallon less than last week but almost 50 cents per gallon higher than a year ago.
Residential propane prices averaged almost $2.42 per gallon, nearly 2 cents per gallon more than last week and almost 10 cents per gallon higher than a year ago. Wholesale propane prices averaged nearly $1.01 per gallon, virtually unchanged from both last week’s and last year’s prices.
For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-4522.
Retail prices (dollars per gallon)
| Retail prices | Change from last | ||
|---|---|---|---|
| 10/22/18 | Week | Year | |
| Gasoline | 2.841 | -0.038 | 0.362 |
| Diesel | 3.380 | -0.014 | 0.583 |
| Heating Oil | 3.373 | 0.009 | 0.704 |
| Propane | 2.418 | 0.016 | 0.096 |
Futures prices (dollars per gallon*)
| Futures prices | Change from last | ||
|---|---|---|---|
| 10/19/18 | Week | Year | |
| Crude oil | 69.12 | -2.22 | 17.65 |
| Gasoline | 1.914 | -0.028 | 0.236 |
| Heating oil | 2.302 | -0.019 | 0.497 |
| *Note: Crude oil price in dollars per barrel. | |||
Stocks (million barrels)
| Stocks | Change from last | ||
|---|---|---|---|
| 10/19/18 | Week | Year | |
| Crude oil | 422.8 | 6.3 | -34.6 |
| Gasoline | 229.3 | -4.8 | 12.5 |
| Distillate | 130.4 | -2.3 | 1.1 |
| Propane | 81.999 | -0.299 | 4.379 |