ICE Gasoil Moves to Backwardation as Rhine Floods Halt Shipments

Front-month gasoil traded at a premium, or backwardation, to the next month for the first time since February amid speculation supplies will be disrupted by floods that halted barge traffic on parts of the Rhine River.

June gasoil traded at $854.75 a metric ton, $1 more than July on the ICE Futures Europe exchange at 4 p.m. London time. The front spread last traded in backwardation on Feb. 27, excluding expiry day anomalies. Contracts for July to January 2014 are trading in the opposite contango structure.

“Part of it is to do with some physical scarcity in the European gasoil market as the Rhine River is shut due to flooding,” Abhishek Deshpande, an oil markets analyst at Natixis in London, said by e-mail. Futures will probably return to contango after shipments along the river resume, he said.

Chancellor Angela Merkel toured affected areas in Germany as authorities battled to limit the damage from flooding that is the worst on record in some parts of the country and recalls the devastation in 2002, which submerged regions in the Czech Republic, Germany and Austria. The Rhine links industrial sites including the BP Plc-operated Gelsenkirchen oil refinery to Rotterdam, Europe’s busiest port. The waterway also connects to canals in neighboring countries.

The Rhine isn’t navigable upstream from Koblenz in Germany because of high water levels, which means Frankfurt, Mannheim, Strasbourg in France and Basel in Switzerland can’t receive oil product shipments, Joachim Hessler, operations manager at Maintank Schiffahrtsgesellschaft mbH, a barge-owner based in Woerth near Frankfurt, said by e-mail today.

“In this physical scarcity, oil products tend to be delivered by more expensive alternative methods of transportation,” which boosts prompt prices, Deshpande said. “As we see barges back into operation to deliver oil products, we should see the backwardation flip into contango,” he said.

Oil companies are currently using supplies from storage to offset any delay in shipments, Pieter Kulsen, founder of Netherlands-based energy researcher PJK International BV, said by phone from Breda.

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