Major US Refinery Slowdown on the Way?

US refinery margins have been hit hard by a distillate glut.  Their stock prices are hurting and many are beating them up over their high inventories of both refined products and crude.  At the same time crude prices are surging.  It looks like it is time for them to slowdown and at least get crude prices to fall back so they can run with crude in the $30s or at least low $40s.

Source:  EIA Weekly Report

psw01 2016-4-27

The last few weeks of data seem to indicate refinery run rates may be on a sustained downtrend.  With very high inventories of gasoline and distillates and rising crude prices a slowdown seems logical.  Also gasoline demand and therefore refinery run rates were strangely high this spring.  Well strange only in year over year terms, but when one considers how cheap gasoline and distillates were this late winter and early spring, it makes sense that many were likely stocking up.

This implies that refiners could move towards 2013 run rates for May and possibly into June or even into July just depending how much gasoline has been spread around and is still in storage.  Certainly distillate inventories are 40-50 million barrels over seasonal norms with a build season coming up where stocks normally build 15-20 million barrels from now until September.  Gasoline inventory is 30 million barrels over seasonal norms.  This seems to imply that refiners have incentive to work off 70-80 million barrels of gasoline and distillate inventory.  If refiners slowed down another 1 million barrels a day inline with seasonal 2013 run rates, it would take 70 to 90 days to work off that inventory provided demand remains unchanged.  This is not unrealistic even through the summer if gasoline has been hoarded while it was cheap, meaning demand will be much lower than expected.

This also implies crude inventories could build at a rate of 1 million barrels per day as well over the same time period.  Certainly it appears that we could be in for more heavy crude builds through May and into June.  I'm expecting a 5-10 million barrel build in crude inventory this week and likely next week as well.

psw01 2016-4-27

psw01 2016-1-13