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US refinery activity contributes to a crude oil 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 declined yet again, averaging 15.1 million barrels per day, or MMbbls/d, during the week ending February 27, decreasing by 130,000 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, as refineries enter into the refinery maintenance season again.

Refinery input levels had 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 refinery maintenance season. Input levels briefly surged to touch the 16 MMbbls/d mark before falling again as refiners shut down for maintenance.

A crude inventory build is bearish for crude prices, which in turn is bearish for major oil producers like Marathon Oil (MRO), Continental Resources (CLR), Oasis Petroleum (OAS), and Cimarex Energy (XEC). MRO and XEC are part of the Energy Select Sector SPDR ETF (XLE), and they make up ~2% of the ETF.

Operating capacity

The decline in crude inputs lowered the operating levels by 0.8 percentage points, matching analysts’ expectations, to touch 86.6% of operable capacity last week.

Therefore 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 affected gasoline and distillate inventories last week.

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