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Crude Oil Rally Short-Lived: Fundamentals Still Feeding the Bears

PART:
1 2 3 4 5 6 7
Part 5
Crude Oil Rally Short-Lived: Fundamentals Still Feeding the Bears PART 5 OF 7

US Refinery Demand Falls, Leading to Rise in Crude Oil Inventory

US refinery demand 

We covered US crude oil production in the previous part of this series. Now let’s see how US refinery demand is influencing the oil market. The EIA (U.S. Energy Information Administration) reported that US refinery demand fell by 194,000 bpd (barrels per day) to 16.4 MMbpd (million barrels per day) for the week ending January 8, 2016. Weak refinery demand led to the rise in the crude oil inventory, as covered in the second part of this series. Refinery demand fell due to seasonal maintenance during the winter season.

US Refinery Demand Falls, Leading to Rise in Crude Oil Inventory

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US refinery demand by region

The US refineries operated at 91.2% of their operable capacities for the week ending January 8, 2016. The refinery demand was the highest in the Gulf Coast, West Coast, and Midwest regions of the United States. The inputs to the refineries were 8.8 MMbpd, 2.6 MMbpd, and 3.7 MMbpd, respectively, for these regions in the week ending January 8, 2016.

Impact 

Weak refinery demand will negatively affect oil producers like Whiting Petroleum (WLL), Murphy Oil (MUR), Marathon Oil (MRO), and Continental Resources (CLR). The fall in refinery demand also implies weak retail demand, which is bearish for the depressed oil market.

Low demand affects the performance of ETFs like the United States Oil Fund (USO), the ProShares Ultra Bloomberg Crude Oil ETF (UCO), the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), and the iShares U.S. Oil & Gas Exploration & Production ETF (IEO).

Read how US crude oil imports have a vital role in driving crude oil prices in the next part of this series.

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