Increased Refinery Activity Is Good News for Crude Prices

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.

US crude oil refinery inputs averaged 15.7 million barrels per day (or MMbpd) during the week ending March 27, increasing by 198,000 barrels per day (or bpd) compared to the prior week’s average. The rise in refinery inputs signals the onset of 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, which in turn is bullish for major oil producers like Occidental Petroleum (OXY), Apache (APA), Anadarko Petroleum (APC), and Cimarex Energy (XEC). All of these companies are components of the Energy Select Sector SPDR ETF (XLE), making up 9% of the ETF.

The increase in crude inputs increased refinery operating levels by 0.4 percentage points to touch 89.4% of operable capacity last week. Analysts’ expectations called for a 0.5 percentage point increase.

As we discussed in the previous part of this series, a build in crude inventories despite a drop in production and imports, along with an increase in refinery demand, should give an indication as to the large margin by which supply currently outstrips demand in the US.

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