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Why Have Refinery Inputs Dwindled?

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Jan. 14 2016, Updated 9:53 a.m. ET

Refinery inputs

The EIA’s (U.S. Energy Information Administration) weekly report on January 13, 2016, stated that US crude oil refinery inputs averaged over 16.4 MMbpd (million barrels per day) during the week ended January 8, 2016.

This was a fall of 194,000 bpd (barrels per day) compared to the prior week’s average. The current refinery inputs are around 3.3% higher than the refinery inputs of the corresponding period last year.

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Refinery utilization rate

The fall in refinery inputs caused the refinery utilization rate for the week ended January 1, 2016, to fall from 92.5% to 91.2 % on January 8, 2016.

Lower demand pullback refinery inputs

The long-term lower crude oil prices (USO) and prolonged positive trend in the crack spread pushed refinery inputs and refinery utilization capacities. After coming back from winter refinery maintenance, refineries touched 95% of their utilization capacities, which means refinery input increased.

The maximum refinery utilization rate and lower gasoline and distillate demand led to inventory builds, even though refineries operated and continued to operate at more than 90% of their capacities due to high refinery margins. Inventories rose at a rapid pace, which impacted the prices of refined products such as gasoline and distillates. This in turn impacted refinery margins. So, now refinery inputs are falling to bring stability back to prices as well as to control inventory levels.

The fall in the refinery inputs indicates lower demand for crude oil. The fall in demand has a negative impact on crude oil prices, which could have a greater impact on the revenues of crude oil producers such as Energen (EGN), Oasis Petroleum (OAS), Chevron (CVX), Apache (APA), and ExxonMobil (XOM).

Find more updates on gasoline in the next part of this series.

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