• Energy and Income Advisor
  • Conrads Utility Investor
  • Capitalist Times
  • Twitter
  • Seeking Alpha
  • Roger S. Conrad

Real Talk about Oil Prices

By Elliott H. Gue on Jul. 18, 2015

Strong refinery runs and record gasoline demand temporarily obfuscated a US oil market that remains considerably oversupplied. But these seasonal tailwinds have started to dissipate.

Throughput at US refineries has surged from a low of about 15 million barrels per day to 16.8 million barrels per day last week—a seasonal increase of about 2 million barrels per day.

US refinery activity historically has peaked a week or two after Independence Day. Refinery runs usually drop by more than 1 million barrels per day from that July top through early October, a period of relatively low gasoline demand when many refiners take capacity offline for maintenance

(Click graph to enlarge.)US Refinery Runs vs 5 Yr Av

Refinery activity ticks up in November and December, as operators ramp up utilization rates to produce heating oil before the start of a second maintenance season that lasts through April of the new year.

The strength in US gasoline demand could push back peak refining activity by a week or two this summer. But history indicates that US refinery runs will peak before the end of July.

Some inexperienced market participants have confused seasonal strength in refinery utilization rates with a fundamental shift in supply and demand.

US oil inventories remain 96.6 million barrels higher than the five-year average for this time of year, an improvement from 112 million barrels in the spring. And that’s after a drawdown that occurred about 60 percent faster than usually.

(Click graph to enlarge.)US Oil Inventories vs 5-Yr Avg

Even if we assume that this accelerate drawdown continues, US oil inventories would end the withdrawal season about 91 million barrels per day above the five-year seasonal average.

Unless an unusually cold winter boosts heating-oil consumption or European distillate demand surges for some unforeseen reason, US inventories will start to build from a record-high level, potentially setting the stage for credible concerns about exhausting storage capacity in early 2016.

To worsen matters, US refiners continue to push their facilities hard to take advantage of strong crack spreads, an industry-specific profitability metric that compares input costs to prevailing sales prices for gasoline, diesel and other products.

But the wear and tear from running at an elevated utilization rate in hot weather could extend the length of the fall and winter maintenance seasons, exerting further pressure on oil prices.

Energy & Income Advisor

Your complete guide to energy investing, from growth stocks to high-yielders.

In October 2012, renowned energy expert Elliott Gue launched the Energy & Income Advisor, a twice-monthly investment advisory that's dedicated to unearthing the most profitable opportunities in the sector, from growth stocks to high-yielding utilities, royalty trusts and master limited partnerships.

Subscribe today to receive a sample issue of EIA
  • Live Chat with

    Elliott and Roger on Mar. 30, 2017

  • Portfolios & Ratings

    • Model Portfolios

      Balanced portfolios of energy stocks for aggressive and conservative investors.

    • Coverage Universe

      Our take on more than 50 energy-related equities, from upstream to downstream and everything in between.

    • MLP Ratings

      Our assessment of every energy-related master limited partnership.

    • International Coverage Universe

      Roger Conrad’s coverage of more than 70 dividend-paying energy names.

    Experts

    • Roger S. Conrad

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

    • Elliott H. Gue

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

    • Peter Staas

      Managing Editor: Capitalist Times and Energy & Income Advisor