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Increase in Refinery Activity Moderates the Crude Inventory Build

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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.

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Refinery input trends

US crude oil refinery inputs averaged 15.3 million barrels per day (or Mmbpd) during the week ending March 6, increasing by 187,000 barrels per day (or bpd) compared to last week’s average.

The increase in crude input demand from refineries along with a decrease in imports curtailed another huge inventory build. While inventories did rise this week, thanks to record high production, the increase was relatively lower than last week’s numbers when they rose 10.3 million barrels, the largest weekly gain since March 2001.

The rise in refinery inputs likely indicates the end of seasonal maintenance that refineries enter into to prepare for the summer driving season.

Demand for crude inputs is high during peak driving season, which is bullish for crude prices. Peak driving season is also bullish for major oil producers like Murphy Oil (MUR), Continental Resources (CLR), Occidental Petroleum (OXY), and Cimarex Energy (XEC). MUR, OXY, and XEC are part of the Energy Select Sector SPDR ETF (XLE), and make up 5% of the ETF.

Operating capacity

The rise in crude inputs increased the operating levels by 1.2 percentage points, to touch 87.8% of operable capacity last week. Analysts’ expectations called for a 0.5 percentage point decline.

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

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