Why refinery maintenance isn’t the best thing for crude prices



Refinery demand

Refineries are the main source of crude demand. Refinery input levels affect inventory draws and builds. So, refining throughputs affect inventory levels not only for crude oil, but also for refined products—like gasoline and distillates. We’ll discuss inventory levels for these products in the next parts of this series.

Article continues below advertisement

Refinery input trends

US crude oil refinery inputs averaged 15.5 million barrels per day, or MMbbls/d, during the week ending January 30. Inputs increased by 288,000 barrels per day, or bpd—compared to last week’s average. Refinery inputs still remained under 16 MMbbls/d—despite the increase.

Refinery input levels remained comfortably over the 16 MMbbls/d mark since July 2014. They saw a dip during the later part of the year as refineries entered into seasonal maintenance. Input levels briefly surged to touch the 16 MMbbls/d mark. Recently, the input levels fell again.

The drop in refinery inputs is typical for this time of the year, as refineries enter into the refinery maintenance season again.

A crude inventory build is bearish for crude prices. It’s also bearish for major oil producers like Marathon Oil (MRO), Whiting Petroleum (WLL), Pioneer Resources (PXD), and Hess Corp. (HES). These companies are part of the Energy Select Sector SPDR ETF (XLE).

Operating capacity

Last week, operating levels rose slightly by 1.9% to 89.9% of operable capacity. Analysts expected a 0.5% decline.

While supply and import levels declined slightly between weeks, refer to Part 2 in this series, they remain relatively higher than the 2014 levels. Also, when we include a refinery slowdown into the equation, we get a crude inventory build. This is what happened last week. The refinery slowdown is expected to last through April.

In the next part of this series, we’ll discuss how refinery capacity impacted gasoline and distillate inventories last week.


More From Market Realist