Gasoline Glut Threatens Oil’s Rebound Later This Year

A rebound in oil prices this year from 12-year lows is in danger of coming to a crashing halt, as the main engine of global demand growth for the past several years starts to sputter amid signs of a gasoline glut.

Crude oil LCOc1 has rallied more two-thirds from its mid-January nadir on robust demand from refineries worldwide, stoking cautious optimism among producers and exporters that the epic rout that slashed global prices by 75 percent between mid-2014 and early 2016 is finally over.

But rampant production of oil products, especially in Asia, is threatening to derail that recovery. Several major gasoline importing countries have started to export, as excess supplies of fuels overflow storage facilities and erode refinery profits.

“Asia has overcapacity in refining, so that’s ruining margins,” said Oystein Berentsen, managing director for crude at oil trading firm Strong Petroleum in Singapore.

“Japan is exporting and product stocks are still building. In China, new refiners are exporting as much as they can, so they’re flooding the market. At some stage, the refining overcapacity will have an effect on crude.”

Soaring output has left the world awash with cheap crude as supply exceeds demand by 1 million to 2 million barrels per day.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza