Refinery inputs are down
In its weekly report released on January 27, 2016, the EIA (U.S. Energy Information Administration) reported that US crude oil refinery inputs averaged 15.6 MMbpd (million barrels per day) during the week ended January 22, 2016. This was a fall of 551,000 bpd (barrels per day) compared to the prior week’s average refinery inputs.
Refinery utilization rate
The fall in refinery inputs led to a decrease in the refinery utilization rate from 90.6% for the week ended January 15, 2016, to 87.4% for the week ended January 22, 2016.
Why refinery inputs fell
The refinery utilization rate fell below 90% for the first time since refineries started operating after winter refinery maintenance season due to long-term lower crude oil prices, which led to heavy refinery margins.
The gasoline demand is quite strong compared to the previous year. However, the less-than-anticipated levels of demand and mild winter weather have resulted in negative growth in the distillate demand for 2015 compared to 2014, resulting in lower demand and heavy production levels. Thus, the refinery inputs are continuously falling to balance the markets. Summer refinery maintenance is also one of the reasons for falling refinery inputs.
The fall in the refinery inputs means decreased demand for crude oil. The decreased crude oil demand is bearish for crude oil prices. Lower prices have a negative impact on crude oil producers such as Anadarko Petroleum (APC), Murphy Oil (MUR), Apache (APA), and Devon Energy (DVN).
The fall in refinery inputs also indicates lower capacity utilization of refineries, which increases the operational cost of the refineries such as Valero Energy (VLO), Holly Frontier (HFC), Western Refining (WNR), and Marathon Petroleum (MPC).
Marathon Petroleum and Valero Energy collectively account for 5.5% of the Energy Select SPDR ETF (XLE).