Weak US Refinery Demand Spurs Mammoth Rise in Crude Oil Inventory



US refinery demand 

Yesterday, the EIA (U.S. Energy Information Administration) reported that US refinery demand fell by 551,000 bpd (barrels per day) to 15.6 MMbpd (million barrels per day) for the week ending January 22, 2016. US refineries operated at 87.4% of their operable capacity for the same period. US refinery demand fell due to seasonal maintenance and record gasoline and distillate inventories, as covered in the third part of this series. The fall in refinery demand led to the mammoth rise in crude oil inventories, as covered in the second part of this series.

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US refinery demand by region

The Gulf Coast, Midwest, and West Coast regions are the key drivers of US refinery demand. Refinery demand fell the most in the Gulf Coast region, which saw a drop of 0.4 MMbpd to 7.8 MMbpd for the week ending January 22, 2016. The West Coast’s refinery demand also fell for the same period. However, refinery demand rose slightly in the East Coast region.

US refinery demand in 2014

The current weekly refinery demand is 3% more than last year’s level of 15.3 MMbpd. The four-week average for US refinery demand is also 4% more than last year’s level of 15.6 MMbpd. The year-over-year refinery demand increased due to lower oil prices and the high crack spread. However, the glut in the refined products market and the winter season will put pressure on refinery demand and US oil refiners like Tesoro (TSO), Valero Energy (VLO), and Phillips 66 (PSX).

Oil prices have rallied 21% in the last six trading sessions, as covered in the first part of this series. Higher oil prices benefit oil producers like PetroChina (PTR), Royal Dutch Shell (RDS.A), Total (TOT), BP (BP), Eni (E), and Petróleo Brasileiro SA Petrobras (PBR).

The rises and falls in oil prices affect ETFs like the United States Oil Fund (USO), the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), and the Vanguard Energy ETF (VDE).

Read how US crude oil imports are influenced by the US crude oil inventory in the next part of this series.


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