Refinery Utilization is Down in Aftermath of Hurricane Laura
September 4, 2020
In Wednesday’s inventory report the EIA also reported that implied demand for gasoline was down by 8.9%, distillate demand was down by 5.1% and jet fuel demand was down by 47.1% based upon a 4-week average versus last year at the same time. With the end of the driving season at hand and the reports of lower gasoline demand that was a big factor in helping the market to back off despite draws to inventory. The market did sell off hard yesterday but recovered a large portion of the decline by the end of the day. There appears to still be buyers of crude oil near $40.
Refinery utilization was also down big in Wednesday report at 5.6% down to just 76.7% of capacity. Hurricane Laura is part of the reason for this decline but lower demand and refineries shutting down for maintenance are also factors. Refineries are facing a real challenge as gas demand has been better than diesel and refiners have been making gas, but when you make gas you also get diesel. So, despite a large over supply of distillate stocks in an effort to produce gas to supply the demand rebound from the pandemics lows refiners have created a glut of diesel. Refinery margin are not good, and this may cause some refineries to be slow in ramping production back up.
The big selloff in the equities markets was also helping energy prices trade lower yesterday. The US dollar traded up off recent lows and that was pushing energy price lower. These markets did recover off the lows of the day and have not yet done any technical damage to suggest a larger selloff. The bears still need to break the market down to suggest a top has been put in for now.