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Business

Oil refiners to cut back in over-saturated market

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Business

Oil refiners to cut back in over-saturated market

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COMING UP:Oil refiners to cut back in over-saturated market

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00:00:01
>> Extremely large supplies of refined oil, the kind that power our cars and heat our homes across the globe, leaving refineries everywhere little choice but to heavily cut production. That's bad news for anyone who thought crude oil was set for a sustained price recovery as large scale cuts in refineries' output will sap their demand for crude, and create a hard ceiling for prices in the near term.
00:00:23
Reuters reporter Jared Renishaw explains.>> So right now what we're seeing is that there's, in regions like the US, Europe and Asia is just inventories of refined products like gasoline, diesel are at record highs. So right now these regions often trade supplies. If there's US is oversupplied in diesel, for say, they can dump that excess diesel in Europe.
00:00:48
Currently Europe doesn't have any room for that. So what most people predict is that you're gonna have to cut runs, which just means refineries are gonna have to produce less, voluntarily shut off units, in order to trim those inventories, boost margins and kind of rebalance the product market.
00:01:06
>> Crude oil from which refined oil products are made, saw its prices hit a six month high in June, spurring talks of recovery. But fears over huge excess inventories pushed prices back down. Now refineriess must drain a flooded market.>> Certainly refineries don't wanna cut production, right? That is a bad sign for them.
00:01:24
But when margins are low, when you're not making enough to cover the cost of producing it, all companies will find a way to kind of cut production and control those costs. So this is a cost control mechanism.>> Experts say the production cuts, which have already begun in the US and Europe, should rebalance supplies by mid 2017, meaning a sustained price recovery in the oil market could be off for close to a year.