Definition - What does Oil Oversupply mean?
Oil Oversupply is a situation in the oil and gas industry whereby an excessive amount of crude oil is available in the market for trade. This situation makes storage of crude oil difficult because of its surplus availability. An oversupply of any commodity is usually caused when demand is lower than the supply, resulting in the surplus of the commodity.
Petropedia explains Oil Oversupply
Crude oil is treated as a commodity that can be traded on a daily basis or booked in advance as future bookings. Oversupply of crude oil results in a surplus and ultimately leads to the larger amount of crude oil available in the market than its actual demand, i.e., it affects the demand and supply gap for crude oil. This results in the fall of the crude oil prices and related petroleum products. Apart from the fall of crude oil prices, oil refinery gross margins also fall down and thus the overall market sinks. There are many socio-economic factors involved because of which crude oil is oversupplied. Some of them are:
- High crude oil productions by oil producing nations listed in OPEC.
- Adverse weather conditions.
- Demand and Supply gap.
- Large amount of drilling activities and production figures.