* Crude oversupply limits scope for profits
* Strong gasoline demand offers rare arbitrage options
By Ron Bousso and Libby George
LONDON, Nov 24 (Reuters) - In a world overflowing with oil,traders are looking to once-secondary markets such as gasolineand diesel for profits, as limited supplies and rapidly changingdemand offer the volatility they thrive on.
In recent months, surprise shutdowns at relatively smallrefineries or extreme weather conditions have led to spikes inprices of gasoline and other products - allowing traders to cashin by filling the shortage or making a bet on paper pricemovements.
The rise of huge refining hubs in Asia, the Middle East andon the U.S. Gulf Coast has also led to the birth of long supplyroutes for products that rarely existed before.
This stands in contrast to crude oil, where a rising glut insupplies has suppressed much of the physical gyrations that traders make their money on.
The oil overhang, however, has sparked red-hot growth indemand from consumers lured by low prices. This has exacerbatedregional imbalances between oil refineries that produce diesel,gasoline and jet fuel and the demand centres where they areconsumed.
Limited supply of gasoline relative to global demand is nowexpected to lead more frequently to price spikes and newarbitrages, said Michael Dei-Michei, analyst at Vienna-based JBCEnergy.
"There is no room for error," according to Dei-Michei."Gasoline is so far removed from crude ... This type of gasolinedemand growth - it's as fast as we've seen in years. It's very,very unusually strong."
In a sign of a shift in focus, big oil trading houses haveexpanded their oil products infrastructure in recent years.
Vitol, the world's top oil trader, has acquired Royal DutchShell's petrol station business in Australia and alsoinvested in retail in Nigeria. Trafigura has investedextensively in increasing its refining and products storagefootprint in Britain and Africa in recent years.
FLUX OF BUYING IN CHINA
A sharp and unexpected rise this year in demand forhigh-quality gasoline around the world, notably in China and theUnited States, has led to moments of acute supply shortages thatoffered savvy traders possibilities to trade products betweenregions, in what is known as arbitrage.
Earlier this year, a breakdown at a refinery in the middleof the United States caused global gasoline price spikes. Morerecently, outages at Exxon Mobile Corp's 149,000 bpdTorrance refinery in California attracted rarely seen cargoes ofhigh-end gasoline from Europe.
A sudden flux of buying in China forestalled the seasonalprice crash nearly all market watchers were expecting in Europe.
This contrasts with low volatility in trading crude oilwhere a huge oversupply means the impact on prices of majorgeopolitical events such as strife in Iraq and Libya hasdiminished.
"There is no shortage of geopolitical risk among producersbut at the moment that is providing a floor to prices becauseotherwise the market is very well supplied," said David Fyfe,head of market research and analysis at Swiss-based traderGunvor.
"You morph from premium in times of tightness in the marketto a concept of risk floor and that is clearly where we are atthe moment."
Still, Fyfe warned that oil products' moment in the suncould fade as North American shale companies and other oilproducers scale back output, returning a more substantial riskpremium to crude.
"The balance will shift at some point in the future: we willcome full circle and in 2017 or 2018, when the market tightensup again, the risk premium will probably come back with avengeance. But at the moment it is a floor, not a premium." (Editing by Susan Fenton)