Bad olive oil, also termed as rancid, is affected by a variety of factors. All olive oil goes bad at some point no matter what you do to prevent rancidity. The length of time it takes to go rancid depends on its exposure to air and light and the temperature at which it is stored. You can decrease the amount of time it takes to go rancid with proper storage. Identifying if your olive oil has gone bad requires understanding how it should smell, taste and look both when it's fresh and when it goes bad.
Look on the bottle for the production date. Most olive oil starts to go rancid by 18 months after production or as early as 12 months.
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Swirl the container of olive oil and examine its color. After 18 months -- about when the oil may go rancid -- the color starts to change to a brighter yellow.
Place the bottle of olive oil underneath your nose and smell it deeply. Fresh olive oil has a pungent, fruity smell, while a rancid olive oil has little smell or may smell like crayons or stale peanuts.
Take a sip of the olive oil and roll it around in your mouth until the oil touches all areas of your mouth. Rancid oil may taste like pumpkin and has a bitter taste with no fruitiness. It may also feel greasy in your mouth.
Use the steps above to test the oil for "fustiness," caused by fermentation of the olives that have been left to sit for even a few days, with the steps above. Fusty olive oil is so common that many people consider it the norm, but fresh olive oil smells like green, fresh olives. Other, less common problems to watch out for include mustiness, an old-clothes odor that derives from moldy olives, and a wine-vinegar effect, a tangy, chemical scent and flavor.
Store the olive oil away from heat and light to prevent if from going rancid quicker.
Store the olive oil in the refrigerator if you don't plan to use it within a year after you purchase it; the oil firms up, but returns to its liquid state once you remove it from the refrigerator and it has time to reach room temperature.