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.
Refinery input trends
US crude oil refinery inputs declined yet again. They averaged 15.2 million barrels per day, or MMbbls/d, during the week ending February 20. They decreased by 199,000 barrels per day, or bpd—compared to last week’s average.
The decline in crude input demand from refineries aided the inventory build amid record production. The decline in demand is typical for this time of the year. Refineries are entering into the refinery maintenance season again.
Refinery input levels remained comfortably over the 16 MMbbls/d mark since July 2014. They saw a dip during the latter part of the year as refineries entered into the refinery maintenance season. Input levels briefly surged to touch the 16 MMbbls/d mark, before falling again as refiners shut down for maintenance.
Apart from planned maintenance, unplanned outages—like the fire explosion that occurred at the ExxonMobil (XOM) refinery in California last week and the ongoing refinery strikes in certain regions in select refineries—could also lead to a loss of demand for crude.
A crude inventory build is bearish for crude prices. In turn, it’s bearish for major oil producers like Marathon Oil (MRO), Continental Resources (CLR), and Chevron (CVX). Most of these companies are part of the Energy Select Sector SPDR ETF (XLE). They account for ~14% of XLE.
The decline in crude inputs lowered the operating levels by 1.3% to 87.4% of operable capacity last week. Analysts expected a 0.4% decline.
As a result, high supply levels and refinery maintenance induced an inventory build 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.