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Page added on July 1, 2015
Red-hot fuel demand can’t shore up the oil price alone
Sales of transport fuels have exceeded all expectations this year, making demand from reviving economies the mantra of bulls who say the oil price is well on the mend.
But warning signs, especially in Europe, may derail that view. Growing stocks, and early stress signals for some oil products, such as diesel, are throwing a cautionary signal to those who believe the shale oil-driven glut in physical crude markets will be absorbed by demand alone.
Gasoline consumption has bounced far higher, with U.S. drivers joining those in India, Indonesia and China in driving more often, and in some cases in less fuel efficient cars. Diesel for goods-laden trucks and jet fuel has also been in higher demand.
The consumption strength across products led the International Energy Agency (IEA) to revise its demand forecast higher several times, with a current estimate of 1.4 million barrels per day, or 1.5 percent, in growth.
But with refineries worldwide working flat out, whether or not consumers want the products, because their margins are so rewarding, the glut could be moving from crude oil into its refined by-products.
“The global crude surplus is being converted into a product surplus. Refiners are being guaranteed a margin by the massive overhang of crude,” said Jonathan Leitch, chief oil analyst with Wood Mackenzie.
Analysts say middle distillates in Europe are showing particular signs of early stress. Diesel demand fell in France and Italy in May, and growth began to sputter in Spain. The building storage is also casting a shadow on some of Europe’s early-year growth.
In the Amsterdam-Rotterdam-Antwerp hub, a key indicator of demand health, distillate stocks hit an all-time high last week, according to PJK International. Industry monitor Genscape show them nearly 20 percent higher than the same time last year. German heating oil stocks have remained above average all year.
“It’s almost as if middle distillates are coming out as a byproduct of gasoline,” Leitch said. “I don’t think it’s just a European problem. Wherever refineries can, they are running hard.”
Leitch and others note that a colder-than-usual European winter was behind at least part of the demand boost in the first quarter. A change to cleaner grade shipping fuel accounted for a portion as well.
MASKING OVER SUPPLY
Questions around the driver of the early-year demand, along with the building stocks, have raised fresh questions about whether the growth will continue apace – and even so, if that would be enough.
“There has been some underlying growth of demand. But the supply response has been greater,” said Olivier Jakob, oil analyst with PetroMatrix, said. “Demand needs to increase more to absorb.”
While gasoline can continue to support refiner profits for months to come, building stocks could simply be masking for now the extent of the oversupply in oil markets.
“To fully balance the market, you’d need 3.5 percent demand growth – at least one percentage higher,” said Bjarne Schieldrop, chief commodities analyst with SEB in Oslo.
According to the latest figures from the IEA, oil product stocks in the developed world crept above the five-year average in the spring of this year for the first time in more than four years.
“We have seen oil stocks trending higher,” Schieldrop said. “The market is running a surplus and you are constantly adding some push to the downside as a result.”
There is at least 40 million barrels of independent distillate storage capacity still available in the Atlantic basin, according to analysts Energy Aspects, which can easily absorb the tidal wave of products they expect over the coming months. But this build will eventually ramp up pressure on crude prices, unless there is a slowdown in oil output.
“Diesel fundamentals are weak, but crude fundamentals are weaker, so the downward move in crude is likely to be greater,” Energy Aspects said.
14 Comments on "Red-hot fuel demand can’t shore up the oil price alone"
Makati1 on Wed, 1st Jul 2015 8:03 pm
More pimping by Big Petro…
Plantagenet on Wed, 1st Jul 2015 9:07 pm
Its amazing that the growth in oil production continues to outstrip the growth in oil demand, and 8 months after the oil glut caused oil prices to collapse there is no sign of the oil glut ending.
Davy on Thu, 2nd Jul 2015 2:03 am
Article said “The consumption strength across products led the International Energy Agency (IEA) to revise its demand forecast higher several times, with a current estimate of 1.4 million barrels per day, or 1.5 percent, in growth.”
I learned something today. I learned what “Red-Hot” means in regards to fuel demand. That is exciting and I feel optimistic. The world is improving because we are driving more. Worrium switched back to hopium.
Folks when the fed’s raise rates and they remain at that level or higher for 1 year I will quit my worrium. Fuel demand is not a good economic indicator in my book. People like to drive for stupid reasons. This does not mean investments are being made to raise real growth. It is well know that economist are disappointed that lower fuel prices are not translating into higher growth that was optimistically anticipated.
Beery on Thu, 2nd Jul 2015 4:40 am
What will Planty do when he can’t type the word “glut” anymore with regard to oil.
joe on Thu, 2nd Jul 2015 8:04 am
They are talking about marginal growth and clearly states they need 3.5% to balance demand to supply. The glut in crude causes a glut in the products of crude, makes them cheaper to refine therefore cheaper to sell right? Wrong, because it’s talking about Europe and margin they are intentionally not using the phrase ‘marginal profit’. Prices won’t fall to end consumers as much as crude did to refiners. That’s not small potatoes. Any benefit falling to the masses of Euro car drivers will be a couple of cent in a litre. Europeans pay twice or more per gallon than Americans do for fuel.
BobInget on Thu, 2nd Jul 2015 8:52 am
I keep harping on what will indeed shorten supply. Below, a post I made this morning.
IS attacks Egypt
http://www.theguardian.com/world/2015/jul/01/egypt-sinai-peninsula-attacks-army-checkpoints-car-bombing
Unless a person googles “Islamic State Attacks Egypt”, chances are good you won’t see that headline in your news round-up.
I ask myself, why? Why hasn’t a single news organization questioned why Israel, Saudi Arabia, aren’t engaging IS in Syria and Iraq instead of waiting for IS to invade?
http://www.jpost.com/Arab-Israeli-Conflict/Netanyahu-We-are-partners-with-Egypt-in-the-fight-against-ISIS-that-has-reached-our-borders-407711
WHEN, Saudi Arabia exhausts itself bombing Yemen for being’ Religiously Incorrect’ IS will move on that great nation.
BobInget on Thu, 2nd Jul 2015 9:04 am
One reason alone stands out.
Saudi Arabia most certainly picked the wrong fight. Iran is not their enemy. The so called Islamic State, a Saudi Creation is.
In a strange and most ironic manner Saudi Arabia is in the process of being overthrown
by IS from within.
By bombing enemies of radical Islam the
Saudis tipped their Soft Egyptian Cotton hands.
Please, anyone who sees this differently hide behind your screen name and tell me where I’ve
gone wrong.
BobInget on Thu, 2nd Jul 2015 10:20 am
Back to the topic.
I agree with ‘Joe’. (who doesn’t)
While Europe is smaller then Canada or the US
most of us here don’t drive coast to coast often.
The fist time visiting Europe in the 1950’s I could not believe the price of gasoline.
Okay the transportation system, local and distant is highly developed. Auto ownership
not as great as in NA. Still, nine or ten bucks a gallon?
Apologies to shortonoil, I intended to make you blush.
Before this year is out we in America will find out how we manage doubling gasoline prices.
I can’t help making analogies with climate changes. In Pakistan (headache)
government was too busy dealing with flooding from rapidly melting glaciers to worry about future, now PERMANENT drought.
In North America there is said to be an oversupply of crude oil and natural gas.
Commonly called “glut”. As result of ‘glut’
prices fell below cost. Cheaper gasoline brought full employment to most sectors, EXCEPT oil and gas.
When oil prices fell below cost of production,
political unrest began to surface in most oil exporting nations.
China grasped at every loan opportunity.
Russia came along soon after. As result, many
oil exporting nations find themselves deeply indebted. (OPEC members,Ecuador, Venezuela,
are so committed to Chinese and Russian loan servicing, export elsewhere remains doubtful.
While Saudi Arabia continues to stress it’s oil fields, drill record numbers of new wells, He cannot get much over ten million barrels p/d.
Demand, in particular from the military already exceeds production.
Tell me I’m mistaken. One single MERVED missile can plunge the planet into world war.
Here’s a ‘high school’ rundown.
KSA hates Iran. Israel hates Iran. USA hates Iran. Iraq should hate Iran but doesn’t.
Jordan, Egypt, Syria, Lebanon come from underprivileged families. They eat at their own table. Mother Russia pretends to love everybody but really cares only about herself.
China, corner loanshark, will lend anyone lunch money with a ready market and resources.
Islamic State hates all students. IS, taking advantage of blatant cheating, intends to burn down schools and teach their own lessons.
BobInget on Thu, 2nd Jul 2015 10:47 am
Platt’s Printed this.
http://www.platts.com/latest-news/oil/london/oil-prices-expected-to-improve-on-rising-demand-26127029
(Saudi Arabia created demand by slipping
off the ‘proxy’ model onto the ‘zombie’)
In one smell poop KSA weakened itself into a direct rather then indirect target.
BobInget on Thu, 2nd Jul 2015 11:06 am
Hours ago UN Peacekeepers were attacked
in oil exporter, Mali.
http://www.newswest9.com/story/29461612/attack-on-un-convoy-in-north-mali-kills-6-workers-wounds-5
Reminded of this article linked below;
http://www.mintpressnews.com/oil-and-gas-continue-to-grease-the-wheels-of-war-around-the-world/206327/
Islamic States fighters are attacking on half dozen fronts making concerted opposition
difficult.
BobInget on Thu, 2nd Jul 2015 1:58 pm
How about a live stream crossing Pacific in single seater solar aircraft?
http://www.gizmag.com/solar-impulse-2-records-longest-solo-flight/38264/?utm_source=Gizmag+Subscribers&utm_campaign=4d8f13304e-UA-2235360-4&utm_medium=email&utm_term=0_65b67362bd-4d8f13304e-89840586
Ted Wilson on Thu, 2nd Jul 2015 9:29 pm
How much of this is gasoline and how much is ethanol. Ethanol sales is also very high and this is never reported in mainstream media.
shortonoil on Fri, 3rd Jul 2015 7:03 am
“The consumption strength across products led the International Energy Agency (IEA) to revise its demand forecast higher several times, with a current estimate of 1.4 million barrels per day, or 1.5 percent, in growth.
The consumption of petroleum products by the petroleum industry is now growing by 2.4% per year. Consumption by the end user is almost flat, and may even be negative. Low oil prices have done nothing to stimulate the general economy, if the production of oil itself is excluded. Being energy neutral to negative, the shale industry is a significant user of petroleum products. Once the shale industry begins its inevitable decline demand will fall with it. That is likely to happen within the next year as financing for shale development ends:
http://www.zerohedge.com/news/2015-07-02/shale-drillers-about-be-zero-hedged-loss-protection-expires
With the decline in shale, demand will fall and prices will again begin their descent.
http://www.thehillsgroup.org/depletion2_022.htm
Prices are already low enough that most producers can no longer afford to replace their ever more costly reserves. The depletion of the world’s oil reserves will become apparent as producers find that they can no longer make money producing oil. To remain in business they will continue to pile debt on to their $2.5 trillion in existing debt, and they will continue to liquidate assets to raise cash. The world’s oil reserves are rapidly approaching the “dead state”. The point were production ceases!
http://www.thehillsgroup.org/
Kenz300 on Sat, 4th Jul 2015 8:39 am
The oil companies hate the competition from E85 and ethanol……… and they are doing all they can to stop it or slow down its acceptance………….
It is time to end the oil monopoly on transportation fuels.
Bring on the electric, flex-fuel, E85, ethanol, biodiesel, CNG, LNG and hydrogen fueled vehicles.
The more competition the better.