• 4 minutes "Natural Gas Trading Picks Up Considerably Amid High Volatility" by Charles Kennedy - ...And is U.S. NatGas Futures dramatically overbought at the $6.35 range?
  • 8 minutes How Far Have We Really Gotten With Alternative Energy
  • 12 minutes  What Russia has reached over three months diplomatic and military pressure on West ?
  • 59 mins GREEN NEW DEAL = BLIZZARD OF LIES
  • 27 mins What China is Learning from Russia's War in Ukraine and its Consequences
  • 3 days Revisiting: "The U.S. Grid Isn’t Ready For A Major Shift To Renewables" from March 2021 by Irina Slav at OILPRICE
  • 6 days How cheap Chinese tires might explain Russia's 'stalled' 40-mile-long military convoy in Ukraine
  • 7 hours Natural Gas is the Cleanest and most Likely Source of Energy to Fuel the World.
  • 2 days Failure To Implement Russian Oil Ban Could Send Oil Crashing To $65
Aramco Overtaking Apple Proves Investors Still Love Oil

Aramco Overtaking Apple Proves Investors Still Love Oil

Saudi Aramco has dethroned Apple…

High Gasoline And Diesel Prices Are Here To Stay

High Gasoline And Diesel Prices Are Here To Stay

As gasoline and diesel prices…

Afghanistan Can’t Pay Its Biggest Electricity Suppliers

Afghanistan Can’t Pay Its Biggest Electricity Suppliers

Sanctions against the Taliban government…

Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

More Info

Premium Content

Gasoline Glut Remains The Biggest Red Flag For Oil Markets

In a sign that the gasoline glut is not going away, U.S. refiners are succumbing to poor market conditions, reluctantly moving to cut back on production as they drown in oversupply.

The gasoline glut is the worst in nearly three decades, with stocks rising to their highest level since data collection began in 1990. And as with any market suffering from too much supply, prices have crashed. Refining margins for gasoline are at their lowest level in years due to the overhang, and major refiners are being forced to throttle back on production.

Reuters reports that at least three refineries have reduced output recently. Marathon Petroleum Crop cut gasoline production by 11 percent to 195,000 bpd at its Kentucky refinery and PBF Energy reduced output at two of its refineries, one in Ohio and the other in Louisiana. These are early signs that the refining industry is being forced to cutback as gasoline storage is bursting at its seams.

At the same time, other refineries are undergoing routine post-winter maintenance, retooling for summer fuel blends. The combined outages should help reduce gasoline inventories, which stand at nearly 260 million barrels.

"We've got to really look at these inventories, and shame on us if we fall into the same trap that we did last year," PBF Energy CEO Tom Nimbley told Reuters. In 2016, refiners ramped up gasoline production to extraordinary heights, hoping to take advantage of brisk demand and appetizing margins. But the resulting glut crushed refining margins and led to record high inventory levels – a record that was only eclipsed this month. Related: Why Oil Demand Forecasts Have Become A Guessing Game

(Click to enlarge)

A more cautious approach from the refining industry could help pare back inventories, but that still leaves the crude oil market with a mess on its hands. Lower refining runs will equate to lower crude oil purchases, and as a result, potentially higher oil inventories. So, even as gasoline stocks fall, crude oil stocks could rise even more.

The problem, then, is not necessarily with the refiners, but with a mismatch between crude oil supply and demand for its products – the same problem that the market has been dealing with since mid-2014. Overproduction downstream is the knock-on effect from years of too much supply upstream.

So, what about crude oil then? The oil market is “in a holding pattern as they wait for hard data” that demonstrates improvements in demand, Goldman Sachs wrote in a research note. “Markets need to see that the OPEC supply cuts generate real inventory draws and the strong manufacturing survey and Chinese credit data create real activity. In other words, ‘show me the activity’; real demand, real stock draws and empty warehouses,” the investment bank concluded.

On the other hand, Goldman is not concerned about the sudden uptick in U.S. crude inventories, citing broader drawdowns in storage elsewhere in the world. “The U.S. will be the last to draw and global fundamentals suggest a much stronger market than the recent U.S. stock builds would suggest.” Goldman Sachs analysts also downplayed the seemingly terrible gasoline demand figures in the U.S., chalking some of it up to quirks in data measurements from week to week. Related: Non-OPEC Compliance Rate Rises To 60%

There were two other observations from Goldman’s report that are worth noting. The bank was surprised at how quickly U.S. oil production was rebounding, leading to an upward revision of its supply forecast for 2017 by 200,000 bpd. Goldman now expects the U.S. to add 800,000 bpd by the end of the year. However, the second important point to note is the fact that Goldman says this higher output will be fully offset by higher demand.

Putting it all together, Goldman stuck to its forecast for Brent to average $59 per barrel in the second quarter and WTI to average $57.50 – meaning the bank expects price gains in the next few months.

But that all hinges on a turnaround in the inventory data. Both crude oil and refined product stocks have climbed almost every week of 2017 so far, and sometimes by enormous amounts. The second quarter will only see higher oil prices if the supply overhang narrows – and inventories start to fall.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com


Download The Free Oilprice App Today

Back to homepage





Leave a comment
  • Goldie on February 23 2017 said:
    Goldie is long oil and gas.

Leave a comment




EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News