Will Increased Refinery Inputs Benefit Crude Oil Producers?



Refinery inputs

The EIA (U.S. Energy Information Administration) released its Weekly Petroleum Status report on November 18, 2015. According to the report, US crude oil refinery inputs averaged 16.1 MMbpd (million barrels per day) during the week ended November 13, 2015. That’s ~137,000 barrels per day more than the previous week’s average, which ended on November 6, 2015.

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Operating capacity

Due to the increase in refinery inputs, refineries operated at 90.3% of their operable capacity for the week ended November 13. This was 0.8% more than the operating capacity for the week ended November 6.

Impact on crude oil inventories

Crude oil is the raw material for refineries. So refinery inputs are the key for crude oil demand. When refinery inputs increase more than production and imports, crude oil stocks will fall. When crude oil stocks fall, it’s bullish for crude oil prices (USO).

As the winter season nears, demand for refined products such as gasoline and distillate will increase because it’s important to maintain efficient stock levels of refined products to cater to the needs of consumers. So refiners are increasing operable capacity week by week. When refineries’ operating capacity increases, crude oil demand also increases, which could result in an uptrend in crude oil prices.

Who gains?

An increase in refinery inputs, which increases crude oil demand, is usually bullish for oil producers. When crude oil demand increases, revenues of oil producers such as Occidental Petroleum (OXY), Apache (APA), Marathon Oil (MRO), Anadarko Petroleum (APC), Cimarex Energy (XEC), and Murphy Oil (MUR) should also increase.

Anadarko Petroleum (APC) accounts for 5.6% of the iShares US Oil & Gas Exploration & Production ETF (IEO). Marathon Oil (MRO) accounts for 1.7% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).


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