UPDATE 3-Weak demand blunts effect of Rhine oil shipping halt

Wed Dec 19, 2012 11:47am EST

* Repeat of shortages in Oct unlikely, demand slowing

* Prices could fall if oil products build at ARA hub

* Freight rates unchanged as trading activity limited (Changes dateline, recasts, updates)

By Claire Milhench and Jessica Donati

LONDON, Dec 19 (Reuters) - High water levels have halted shipping along part of the Rhine, holding up shipments of refined oil products into Germany and Switzerland, but weak demand is likely to prevent shortages that led to sharp rises in prices for consumers in October.

Although stocks remain low for the time of year, temperatures are rising, trimming demand for products like heating oil. This is more likely to put prices under pressure.

"For now, due to the warm weather, I would take it more on the bearish side than the bullish side," said Olivier Jakob, an analyst at Petromatrix in Switzerland.

"The weather is warm and some of the product is going to pile up in Rotterdam, which is a price-making area."

The weather is forecast to remain mild at least until the end of the month. As a result, the interruption in shipments along the Rhine could cause prices of gasoline and diesel to fall because of a build up in inventories in the Amsterdam-Rotterdam-Antwerp hub.

Ultimately, however, the extent to which stocks pile up will depend on how many cargoes from other regions are shipped in and out of the hub.

"It's difficult to get barges down from ARA again, but so far we haven't seen any impact (on prices)," said a distillates trader.

The Rhine is an important shipping route for commodities such as grains, minerals, coal and oil products including gasoline and heating oil.

River water levels have risen sharply in the past few days after rising temperatures melted snow, followed by heavy rainfall. High water levels prevent vessels sailing under bridges, while barge wakes can burst waterway banks.

On Wednesday, the river was closed to all shipping until further notice near Karlsruhe in central Germany, a spokesman for the river police said.

"It becomes too dangerous - the barges create waves," said Pieter Kulsen, an independent Dutch oil analyst. "It means they can't go through certain areas because it could create an overflow and impact the people living alongside."

The Rhine reached 752 cm at Maxau on Wednesday morning, and must be closed once it breaches 750 cm. Elsewhere, barges were forced to slow at Kaub WL-KAUB as water levels had risen above the threshold 460 cm, although they remained below the year's peak of 712 cm.

CHRISTMAS PERIOD

A slowdown in trading activity ahead of the Christmas holidays is another reason the Rhine closure is having a muted impact on prices.

Traders prefer to keep stocks low at the end of the year for tax reasons. "With the broken weeks over the Christmas period, everyone is closing their books for 2012," Kulsen said.

A middle distillates broker said that with the warmer weather of recent days, no one expected German heating oil buying to pick up until next year.

German consumer heating oil demand has been limited in recent weeks, with households preferring to run down tanks rather than restock at high euro-denominated prices.

This lack of trading activity is reflected in the sideways move in freight rates despite the higher water levels.

Freight rates for barges heading along the Rhine to Basle have been little changed since the start of December FRT-GOBASLE at 18.50 euros per tonne. Data from Kulsen's PJK International reinforces this picture for gasoline and gasoil freight rates.

The closure of certain sections and slow steaming in other parts will hold up shipments along the river and add to loading delays that have affected ARA in recent weeks.

(Additional reporting by Michael Hogan in Hamburg; editing by Mark Potter and Keiron Henderson)

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