Wednesday, August 10, 2005

The Oil Supply Glut You Didn't Know About

... or at least, I didn't know about. Via Reuters, it appears that price controls in Asian markets that have artificially kept prices to consumers low are being slowly raised to keep state tills from draining excessively. This has put a crimp in fuel use throughout many Asian countries:
"Asian demand was part of the justification (for higher prices) last year but now the focus has turned to Europe and the United States," said Colin Tang, senior oil trader at French investment bank Calyon in Singapore.

"We've demonstrated in the Far East that price does have an impact on demand, which is something that the West doesn't reflect as much, especially not the United States."

Instead of pulling in more foreign oil than last year, refiners across the region are finding there is not enough demand for their fuels to keep producing at full throttle, forcing them to reduce operations or to seek distant markets.

While flagging growth in world No. 2 consumer China and gradual weakness elsewhere have been evident for months, the trend has gathered pace in the past month, taking a toll on markets amid depressed Japanese gasoline use, a slump in Thai diesel consumption and widescale fuel switching, dealers say.

As the absolute price of diesel soars past $70 a barrel and fuel oil tops $280 a tonne, the spreads and differentials that better reflect the underlying market have languished.

"Every single oil product, except for low-sulphur diesel, is suffering from a supply glut in Asia," said one trader in Japan. "I simply cannot understand why oil futures are so high."