Complex Made Simple

Thought gasoline was driving oil prices? Think again

When one thinks of the fluctuating oil price and oil market, the price of gasoline per liter is what often comes to mind.

In reality, a different range of petroleum products has the greater influence on global markets.

Consumer oil demand pales compared to this…

“Diesel, marine gas oil, and jet fuel—collectively known as middle distillates—account for more than a third of global oil consumption,” explains. “Used in road transportation, shipping, aviation, and manufacturing, middle distillates are more closely linked to economic growth than any other section of the oil products market.”

Vitol, an energy and commodities company, refers to middle distillates as “a range of refined products situated between lighter fractions, such as LPG or gasoline, and heavier products such as fuel oil.”

Reuters writes that “inventories of middle distillates—one of the most important refinery products—are also closely correlated with oil price trends and with the shape of the oil futures curve, so the pace of distillates demand and their stock levels could be the key determinant for the oil price changes through the next two years.”

McKinsey, an American worldwide management consulting firm, believes the overall outlook for total middle distillates demand in the medium term will continue to be favorable.

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“This growth will be driven in part by a strong economic outlook globally,” Mckinsey explain.

“An upcoming regulation that analysts have called ‘the biggest change in oil market history’ and ‘the most disruptive change in the refining industry’ is lurking just around the corner, and experts say that it will drive oil prices higher as it will fundamentally shift the demand pattern for fuels,” said

McKinsey continues, “Demand in the shipping sector is also expected to boost overall gas oil demand when the International Maritime Organization’s MARPOL Annex VI regulations on sulfur content in bunker fuel is introduced in 2020. This will significantly reduce bunker demand for high sulfur fuel and raise demand for low sulfur marine gas oil either as a direct product or blended into 0.5% sulfur fuel oil.”

Adding to this, they expect the demand for jet fuel will continue to see the strongest growth of any type of oil product, owing to both the strong linkage between air travel demand and economic growth, and the lack of any realistic fuel substitutes.

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Middle distillates dominate

“Over the next few years, we expect tightness in one particular product — middle distillate — to lead to strength in one particular liquid, crude oil, and especially those crudes that look like Brent,” Morgan Stanley’s global oil strategist Martijn Rats said in May.

Last year, global middle distillates consumption stood at 35.307 million bpd (barrels per day). The largest share, 36%, of the world’s total oil consumption of 98.186 million bpd, according to the BP Statistical Review of World Energy 2018.

In UAE’s Fujeirah, a middle distillate stocks rose by 15.4% week on week to 3.333 million barrels – a nine-month high and the first time stocks topped 3 million barrels since September 11th, 2017, S&P Global Platts Analytics said in a report last month.

The Global Oil Refining Market is predicted to cross $7 trillion by 2024, as reported in the latest study by Global Market Insights, Inc.

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