High inventories weigh on oil market, refiners as demand weakens

The slow pace of global oil demand recovery has stalled in recent weeks of weak refining margins, lack of recovery in jet fuel demand, and uncertainties over global economic growth, including the world’s top oil importer, China, the International Energy Agency (IEA), has warned.

  

Indeed, while most of the market’s attention has been focused on how fast gasoline demand will recover, lower economic and manufacturing activity in all regions of the world has led to oversupply in distillates, including diesel, gasoil, and jet fuel. 

   

Faced with an unprecedented crash in jet fuel demand amid the pandemic, refiners have geared toward making more of the other distillate fuels, whose stocks have risen to levels not seen in decades.

The glut in diesel and other middle distillates has become so evident in recent weeks that traders have started to store fuels for sale atr later date.

 

Locally, the retail price of Automotive Gas Oil (AGO), otherwise known as diesel, has remained steady at between N185 and N195 in many fuel stations.

   

Similarly, oil prices continue to hover around the $40 price, as Brent closed lower mid-day yesterday at $42.39 per barrel, while Nigeria’s Bonny Light rose by 0.28 per cent to $42.60 per barrel.

  

With distillate inventories sitting well above five-year averages, and global fuel demand recovery faltering, refiners don’t have much incentive to process increased volumes because the refining margins have tumbled with the glut.

  

“Persistently weak refinery margins provide little incentive to boost crude purchases,” the IEA said in its monthly flagship, Oil Market Report, this week.