The steep backwardation of the ICE gasoil futures contract and the low water levels in the Rhine river has driven the 10 ppm ultra low sulfur diesel barge premium to its lowest level since April, Platts data shows.
The 10 ppm ULSD FOB Rotterdam barge premium to front month ICE gasoil futures dropped $2.25/mt Wednesday to be assessed at $15.25/mt, the lowest it has been since April 27, Platts data shows.
"It's the ICE structure that is killing the diesel differentials," one barge trader said.
The front month December contract of ICE gasoil futures was assessed Wednesday $8.75/mt above the January contract and was trading at similar levels Thursday morning. The structure is providing no incentive for traders to store product despite wholesale stocks in Northwest Europe now almost empty.
"Stocks are very low but no one wants to buy too much at this kind of level," another barge trader said.
The drastically low water levels in the Rhine river is also deterring buying interest with the river effectively closed to barge traffic into Germany as well as driving up barge freight costs significantly.
The water level at the German city of Koblenz has improved slightly in recent days but still only measured 43cm Thursday.
Forecasts are for rain. But traders fear it could be some time before the Rhine returns to normal and fully opens up the key demand hub of Germany to barge traffic again.
"I suppose premiums might rise as soon as water levels are better," the second trader said. "It is hard to say when they will improve, there is a bit of hope for the middle of next week, but it will be nothing huge, just a small improvement."
"The worst case is that nothing goes better until the end of this year and that's what seems to be priced at the moment with the backwardation and low premiums," the trader added.
