Oversupply Redefined | Russell T. Rudy Energy LLC
The consensus in the oil industry has been that the global glut of crude has depressed prices. However, now that inventories are falling, so are prices. This seems contrary to the law of supply and demand. Is this a refutation of the longstanding relationship between the two? According to a recent article in “World Oil”, the answer is, definitely not. Rather, this is just a matter of how you define supply.
The U. S. shale boom is playing out. As production falls, so are crude inventories. While stockpiles remain substantial, they are headed in the right direction. However, crude is not the only component of supply that needs to be considered. According to the International Energy Agency (IEA), when you take into account all the components of inventory available to consumers, refined products such as gasoline and natural gas liquids (NGL’s), supplies are higher than at any time since 1984.
Now there is a glut of refined petroleum products in general and gasoline in particular. This seems to be a global phenomenon. According to the U. S. Energy Information Administration, when crude prices fell, refiners stocked up and produced large supplies of gasoline in anticipation of the spike in demand due to the summer driving season.
Amrita Sen, chief oil energy analyst at Energy Aspects Ltd., observes, “In many ways, the bigger issue is the total energy overhang. It is the plight of oil products-in particular the light product such as gasoline-that is slowing the pace of total stock-draws even as crude stocks fall, and of the eventual re-balancing.”
Industry observers from the IEA to the Saudi energy minister agree that the global crude glut is ending, but rebalancing the market will take longer. While U. S. crude inventories fell for the ninth straight week, gasoline supplies are so bloated that five tankers headed for New York with gasoline have been rerouted. Even China, the world’s biggest energy consumer, has been dumping surplus gasoline into the Asian market due to oversupply at home.
Jan Stuart with Credit Suisse concludes that the anticipated lift in crude price due to surging summer demand has not materialized due to the gasoline, not the crude oil, glut.
To read the article in its entirety, please go to http://www.worldoil.com/news/2016/7/22/oil-glut-deeper-than-just-crude-exposed-as-recovery-stumbles.
Russell T. Rudy Energy, LLC buys oil, gas and mineral interests nationwide. Please call (800-880-0940), or write (info@rudyenergy.com ) to let us know if you agree, disagree or would just like to comment on this, or any of our posts.
