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Why Have Refinery Inputs Increased?

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Refinery inputs

In its weekly petroleum status report released on November 25, 2015, the EIA (U.S. Energy Information Administration) reported that the US crude oil refinery inputs averaged 16.4 MMbpd (million barrels per day) during the week ending November 20, 2015. This is ~0.30 MMbpd more than the amount reported a week before.

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Operating capacity

Due to the slight increase in refinery inputs, refineries operated at 92% of their operable capacity for the week ended November 20. This was 0.7% more than the operating capacity in the week ended November 13.

Analysis

Consumers don’t purchase crude oil, they purchase refined products of crude oil. Therefore, the demand for refined products is key for crude oil demand. When demand for refined products such as gasoline and distillates increases, refinery inputs also increase. Refinery operating capacity continued to increase from last month, due to the rise in the demand for refined products as the winter season nears.

Along with demand, crack spread plays an important role in determining refinery inputs. When crack spread increases, refineries increase their operable capacity to increase their margins.

Who gains? Who loses?

An increase in refinery inputs results in increased demand for crude oil, which is bullish for crude oil prices (USO). When crude oil prices rise, the revenues and profits of crude oil producers such as Murphy Oil (MUR), Occidental Petroleum (OXY), Marathon Oil (MRO), Apache (APA), Cimarex Energy (XEC), ConocoPhillips (COP), and Anadarko Petroleum (APC) should also increase.

ConocoPhillips (COP) accounts for 1.7% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), and Apache (APA) accounts for 3.4% of the iShares US Oil & Gas Exploration & Production ETF (IEO).

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