Worsening Drought May Push Fuel Prices Higher Earlier

Falling water levels on the Mississippi River raise tensions over oil refining volume, Midwest fuel prices plus fall grain shipments to the Gulf.

Published on: Jul 20, 2012

This week's petroleum futures market rally has pumped prices back to mid-May levels. It's impacting all fuel fractions, particularly in the Midwest where barge shipping is complicated by low river levels, according to the Oil Price Information Service.

Add to that the market nervousness over Middle East geopolitical concerns plus technical strengths. Tensions between Israel and Iran are heating up, as are those inside Syria.

Also at work is the typical season rally with gasoline use rising due to increased consumer traveling. The peak fuel-buying window of opportunity recommended Monday on this site may have passed. See "8 Reasons To fear Rising Fuel Prices" at Rising-diesel-fuel-prices. That story was posted before news leaked out about barge shipping troubles on the Mississippi River.

Worsening Drought May Push Fuel Prices Higher Earlier
Worsening Drought May Push Fuel Prices Higher Earlier

Drought's growing river impact

OPIS reported yesterday that Valero is considering using more barges to deliver and receive oil at its Memphis, Tenn., refinery due to reduced water levels and tighter vessel draft restrictions on the Mississippi River. So far, the barging restriction does not have an impact on the refinery and its supply to customers, a company spokesman insists. "Operations at Memphis are not affected. The Corps of Engineers has been out to do some dredging in the harbor, but that's an annual event."

According to other oil players on the river, reports OPIS, Valero may have to load barges less than full and use more barges. Delivery of oil products are not hampered by barge limitations, however. They can be delivered via pipelines, trucks and rails.

Nonetheless, the major drought crisis sweeping the country is causing a drastic slowdown in crude and oil products transportation via barges on the Mississippi River. And, the strategic waterway for commodities deliveries in the heartlands of America has seen a sharp drop in water levels in the past few weeks. With no major weather change anticipated, it could add one more bullish market factor to corn and soybeans.