Refinery Utilization Rates Led to Reduced Refinery Margins
Distillate Fuel Demand Leads to Drop in US Total Oil Consumption
US refinery utilization rates
US refineries operated at around 93% of their operable capacity in December 2015. Refinery throughput averaged 16.6 MMbpd (million barrels per day), which is 300 Mbpd (thousand barrel per day) higher than a month earlier. The refinery utilization could have been higher but was limited due to unexpected refinery maintenance in the West Coast region.
European refineries ran at 90% of their operable capacities in December 2015, and refinery throughput averaged 10.5 MMbpd. This was 110 Mbpd more than in the previous month and 300 Mbpd more than in the same period last year.
Higher refinery runs contributed to high inventories
The higher refinery runs in the United States kept inventory levels above average, thus keeping the market under pressure. As a result, prices collapsed. The European refineries also contributed to the throughput, taking advantage of low crude oil prices and high refinery margins. Refineries have ignored the current inventory levels, and prices continue to fall.
The lower distillate demand due to mild weather and more distillate fuel oil pumping in Saudi Arabia and China resulted in distillate fuel oil flooding the global markets. The high refinery runs, along with the above factors, crushed refinery margins.
The high refinery utilization rates add to inventory levels, which will impact prices. Falling prices affect the profitability of refineries such as PBF Energy (PBF), Western Refining (WNR), CVR Refining (CVRR), Tesoro (TSO), and Phillips 66 (PSX).
Phillips 66 (PSX) accounts for 8.8% in the iShares U.S. Oil & Gas Exploration & Production ETF (IEO).
For an update on crack spreads, read the next part of this series.
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