Panama Canal drought is making it more expensive to ship fuel across the Atlantic

The cost of shipping fuels such as diesel across the Atlantic has soared to an almost 16-month high amid ongoing disruption at the Panama Canal.

Shipping through the vital waterway — a shortcut between the Atlantic and Pacific oceans — has suffered as an El Nino-fueled drought reduced water levels to an unprecedented low. That’s prompting shipping companies to pay large sums to jump ahead in queues or sail thousands of extra miles around South America.

The disruption is also making it harder for empty vessels to get from the Pacific to Atlantic markets, according to Clarksons Securities AS, a unit of the world’s largest shipbroker.

The daily freight rate for the route from the US Gulf to northwest Europe climbed on Tuesday to $42,558, the highest since early August of last year, according to data from the Baltic Exchange. The cost of shipping fuel the other way — into the US Atlantic coast — also jumped from the previous day.

The amount of available ship capacity in the US Gulf “has remained limited, driving up rates,” Clarksons wrote in a report about the market for medium-range tankers. “Panama Canal disruptions make it harder for vessels to ballast from Asia to the US.”

At the same time, there are signs of robust demand to carry fuels. Shipments of diesel and other petroleum products into northwest Europe from the US Gulf were just shy of 200,000 barrels a day during the November 1-25 period, up almost 40% from October’s daily average, according to data from Vortexa compiled by Bloomberg.

While problems at the Panama Canal can disrupt the supply of vessels to the US Gulf, it can also have the opposite effect by killing trade to the west coast of Latin America, said Richard Matthews, a director at EA Gibson Shipbrokers Ltd.