Sunday , November 3 2024
Home / Energy / Has the oil glut morphed into something else?
Petrol storage
Image: Tom Wigley

Has the oil glut morphed into something else?

Following the collapse of the Doha talks to freeze oil production, many analysts had expected oil prices to fall.  In the end, prices remained fairly stable – although still a long way short of their 2014 peak.  One reason why this might have happened is that the oil glut has moved along the supply chain.

According to Henning Gloystein and Florence Tan at MSN Money, a key reason for market buoyancy has been a rise in demand for crude oil at the refineries:

“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.”

However, rather than seeing an end to the oil industry’s woes, this may be little more than storing up new problems for later.  This is because much of the demand at the refineries has been created by petrol-hungry Asian economies that have recently slumped:

“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.”

For this reason, Gloystein and Tan believe that all that has happened is that a global glut of crude oil has been transformed into a global glut in petrol.  The fundamental question remains the same:

“If all the major consumers sell off their gasoline, it begs the question who will buy it?  The answer is that much will remain unsold and in storage, and once that happens prices will crash.”

Unless there is a major shift in the growth rates in the developed Western states – and particularly an increase in the wages/spending power of ordinary consumers – Gloystein and Tan’s fears may be realised sooner rather than later.

Check Also

Let’s join the dots for them

Let us not forget that beyond hard-pressed bill-payers are thousands more who can no longer afford electricity at all