October 25, 2012 / 5:21 PM / 5 years ago

UPDATE 1-German distributors face weeks of diesel shortages

* Oil companies ration deliveries to wholesalers

* Germany's largest refinery cuts output

* No imminent threat to consumer supplies

By Jessica Donati

LONDON, Oct 25 (Reuters) - Diesel distributors in Germany say they are facing supply shortages that could last another two weeks because of problems with local refineries and low inventories, in the latest sign the region is heading towards a supply crunch this winter.

Several wholesalers in Europe's largest economy say they are having trouble obtaining diesel and other fuels, as oil majors have been forced to ration deliveries to clients to cope with the shortage.

Germany is among the worst affected area in Europe because of a crude oil pipeline problem that has forced its largest refinery to cut processing runs.

In the Czech Republic next door, the same issue has forced another refinery to shut down altogether.

"Barge brokers have reported that business has been delayed because of German traders and importers," said Dutch oil analyst Patrick Kulsen. "There is demand but they have been unable to get the product for consumers."

While there is no imminent risk consumers will be stranded without fuel for their cars or homes, costs are likely to rise as wholesalers pass on the latest increase in prices.

The shortages are causing the price of diesel cargoes for delivery into northwest Europe to rocket to more than four-year highs this week.

On Wednesday diesel cargoes in the region were trading at premiums of $57 a tonne to the benchmark contract, a level not seen since May 2008, until this week.

Mabanaft Germany is one of several wholesalers in the region grappling with a lack of product, which coupled with steady demand, is putting pressure on distributors.

"We are expecting a better situation in the next two weeks due to refineries being expected to increase production," said Mabanaft Germany's managing director, Thomas Johannsen.

In the meantime, storage inventories would be sufficient to plug any gaps in supply, he added.

Johannsen expected shortages to persist until refineries undergoing works in the east ramped up production, with Total in Belgium and Shell in the Netherlands expected to boost output in November.

Shell declined to comment on work at its Pernis refinery, the largest in Europe, with a processing capacity of 412,000 barrels of oil per day (bpd).

A spokeswoman for Total said its Antwerp refinery was functioning normally.

SUPPLY CRUNCH

While unplanned refinery closures can cause problems along the supply chain, shortages are particularly severe this winter because storage supplies are unusually low.

Inventories in Europe have been run down due to a market pricing structure that makes it expensive to hold supplies in storage as prices are highest on the spot market. This makes it unprofitable to build up supplies in storage for sale at a later time.

Storage tank owners say the pricing structure, known as backwardation, is forcing them to keep inventory levels at a minimum, which in turn leaves them more exposed to shocks in supply.

"At the moment everyone is holding as little product as possible because of steep backwardation... every day you have product in your tanks you will lose money," said another distributor in Germany, who asked not to be named.

Shortages in Hamburg were expected to be relieved by shipments from Russia, he added, already on their way to the German port.

Low inventories have made other parts of Europe equally susceptible to supply shocks.

Last week, airports in Scotland were forced to ration jet fuel because of a glitch at a Scottish refinery, forcing the supplier to halt deliveries.

While unplanned refinery closures can cause problems along the supply chain, shortages are particularly severe this winter because storage supplies are unusually low.

"Big players are restricting spot sales to their wholesale customers," said a trader at an oil major.

Refiners say problems obtaining crude oil in central Europe could last until the end of the year. They say the problem has been caused by a drop in Russian deliveries through the Druzhba pipeline, which run through the continent to Germany, the Czech Republic and Poland.

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