Refinery input trends
In its weekly report on July 1, the EIA (U.S. Energy Information Administration) reported that US crude oil refinery inputs averaged ~16.5 million barrels per day (or MMbpd) during the week ended June 26. This was a decrease of 1,000 barrels per day (or bpd) compared to the prior week’s (June 19) average. However, gross inputs rose 182,000 bpd to ~16.97 MMbpd. Gross inputs include raw materials apart from crude oil, such as products of natural gas processing plants, unfinished oil, and other hydrocarbons.
This explains last week’s increase in refinery operating levels by 1 percentage point to 95% of operable capacity, from 94% in the week of June 19.
What this means
A decrease in demand for crude oil inputs indicates that refiners such as Phillips 66 (PSX) and Valero Energy (VLO) as well as refining MLPs (master limited partnerships) such as Northern Tier Energy LP (NTI) and Calumet Specialty Products Partners (CLMT) expect lower profits at current crude oil and refined product prices. This lends a bearish tone to crude oil prices. PSX and VLO make up ~4.7 of the iShares U.S. Energy ETF (IYE).
So, the major drivers for last week’s increase in crude oil inventories were increased imports (supply) and a decrease in demand for refinery inputs (demand). Read the previous part of this series to learn about how crude oil supplies moved last week.
Follow the weekly energy price recaps on Market Realist’s Energy & Power page to see how these demand and supply dynamics pan out for crude oil prices.
Refineries are the main source of crude oil demand. Refinery input levels affect crude oil inventory draws and builds. Refining throughputs affect inventory levels—not only for crude oil but also for refined products such as gasoline and distillates. We’ll discuss inventory levels for these products in later parts of this series.