Dividends and Global gasoline glut weighs heavily on profit margins

In the northeast and across the country we are in the middle of winter. Typically that means colder temperature and more demand for heating – gas, electric, and oil or if you are fortunate maybe wood. The good news for the environment in general is because of energy conservation we are in a global glut of gasoline. In an article by Stephanie Kelly, Henning Gloystein, and Ahmad Ghaddar of Reuters there are record inventories in Asia, America and Europe.

In the US market in late January gasoline margins were $5.70 a barrel, the lowest seasonally since 2009, the laws of supply and demand are there is weak demand and excess supply.

In terms of supply, in the US there was 259.6 million barrels the highest level on  record since the Energy Department began to collect such data in 1990.

Overproduction of gasoline is also a function of the surge in US shale oil output, the oil tends to be light and sweet in its quality resulting in a high yield of distillate fuels such as gasoline.

The good news for the oversupply problem is all refineries go through the refinery maintenance program where the refineries are shut down to be cleaned up. The experts are expecting either 2019 or 2020 to be slower growth in the world’s economy which means demand will stay lower. Perhaps as electric vehicles become the standard a family buys, demand will continue to fall.

Linking to dividend paying stocks, all industries are dependent on the supply and demand curve. In the case of gasoline as vehicles achieve higher fleet mileage, they use less gasoline; as there is a beginning to be a shift towards electric cars they vehicles uses less gasoline. What may be wonderful on the macro level to save the environment, may not be great for the industry. It does take time to shift but watch the supply and demand curve and try to buy the quality companies first.

There are more questions than answers, till the next time – to raising questions.

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