Despite attempts to manage oil prices, the price of crude oil is expected to continue to drop. The OPEC meeting that took place earlier this month failed to put into place any significant plan that would stem the flow of the crude or curb the export of billions of excess oil from major oil producers, specifically Iran and Saudi Arabia.
Crude oil rallied more two-thirds from its mid-January all-time low on demand from refineries worldwide, fueling cautious optimism among exporters and producers that the major collapse in global prices between mid-2014 and early 2016 has come to an end.
According to some analysts, however, the rebound is about to suffer a crashing demise, as a slowdown in global oil demand and a gasoline glut that doesn’t seem to want to go away push oil prices down even below their 75% nadir.
Major gasoline importing countries, such as China and Japan, have taken a closer look at their excess fuel supplies and are reversing direction, sending billions of barrels of the crude to global destinations. Inventories throughout Asia are swelling as supply exceeds demand by 1 million to 2 million barrels per day. Singapore, with inventories near historic highs of 15 million barrels, is struggling to cope with the surplus.
Margins
Margins seem to be spurring the continued oil glut. The difference between the cost of crude and its refined derivatives is often used to estimate refining margins but increased output has shrunk this difference in most of the Asian markets. And gasoline margins - the largest source of profits for most refiners, are down nearly 40 percent since March as inventories near record highs of 15 million barrels.
Traders are now looking to refined gasoline as the next best bet. The price of petrol has zoomed in several Asian countries backed by prosperous car sales in China and India, where a combined 3 million new vehicles hit the road on a monthly basis.
Independent refiners in China are churning out more petrol and diesel fuel than the country needs and they have taken to exporting most of their supply. In Japan, a decreasing population and the introduction of electric cars have been putting pressure on the demand for petrol and refiners that once imported crude for home markets are now looking for global buyers. And in Singapore, traders have taken to storing excess gasoline aboard tankers out at sea as the only storage place left to use.
Petrol demand in the United States seems to have kept energy stocks relatively strong with numbers coming in only just below their highest levels since 1990.
Market watchers have been warning for quite a while that the glut in refined products would end up affecting the crude market. They continue to be concerned that a situation will arise wherein all the major consumers sell off their gasoline and there will be no one to buy it. Most of it will not be sold and will end up in storage, leading to yet another major crash in prices.