Analysis of Weekly EIA Data

Refining Rates

Total crude oil input to US refineries recorded on April 7, 2017 was 16.697 million barrels per day (MMBD). Refinery capacity that was off line for routine maintenance continued to return to service for a total operable capacity of 18.618 MMBD. Refinery utilization is 91 %, which is a strong number as the Spring refining season spins up, but not so high that refineries would be struggling to keep up with demand. In fact, this utilization rate is the most economical for most complex refineries, which means operational expenses should be optimal, making the highest profits possible.

Crude Oil Inventories

Crude oil stocks remain extraordinarily high at 533.4 million barrels. At current refining rates, these inventories would last roughly 200 days if we lost all imports except oil brought in from Canada. In all regions except for PADD 5, crude oil stocks are at historically high levels. Levels in PADD 5 are well within the 5 year range. So, there is no shortage of crude oil and should be no rush to purchase crude oil should prices increase. Open interest in May 17 futures is decreasing, showing waning interest in short term contracts. Open interest is up slightly for the June-July, but drops to almost nothing in the future, suggesting no rush to lock in contracts at prices above $50 per barrel.

Cushing Inventories

PADD 2 crude oil stored in Cushing for futures contracts continues to push the limits of storage capacity at 69.4 million barrels. As a result, any crude oil purchased via futures contracts cannot be stored in Cushing tanks, even if the purchaser is willing to pay storage fees. The purchaser must have a refinery destination lined up and an agreement to ship the oil. One wonders how the market can function in this condition. Clearly, it would seem that there is price pressure on the owners of Cushing oil.

Sources for the 7.4 Million BD of crude oil imported the week of April 4, were: Canada (41.5%), Saudi Arabia (14%), Venezuela (9.5%), Mexico (7.4%), Colombia (5.6%), Iraq (5.3%), Ecuador (3.0%), Nigeria (2.7%), Kuwait (2.7%) and Angola (2%).

Gasoline Inventories

Total gasoline stocks remain at the high mark of the 5 year historical range. Surprisingly, PADD 5 gasoline inventories have been increasing and are about to exceed the 5 year maximum, suggesting consumers are not interested in paying the higher prices recently posted in most areas of California.

Typically, refiners raise prices when they switch to summer blends that historically were said to cost more to make.

Since there have been no significant changes in these blends in recent years, it seems more likely that price increases are simply a test to see what the market will bear. In California, most people drive to work, so elasticity in demand is always a question. What is the amount of gasoline that Californians’ will purchase no matter what the price? There is a price. But, based on historical data, it is much higher than today’s gasoline prices. It is more likely that drivers shop the discount outlets, like Costco and Safeway, to trim their costs, which seem to be providing the much needed competition in this market.

Distillate Inventories

Inventories of distillate fuel oil are decreasing, not because of significant demand for diesel or heating oil, but because refiners have been using the distillate as feedstock to make gasoline. It was important that refiners take this step because the warm winter months resulted in higher than normal distillate inventories in January. Refiners cannot operate with inventories full of any one product since the refining process produces all products. So, when they are about to scale up production of gasoline, they cannot just increase crude oil to the crude stills because they would also be producing a bunch of distillate. To avoid this problem, they upgrade the excess distillate and keep crude oil inputs slightly lower while they work off some of the distillate in storage.