Oil Inventory Build May Be Due To Lower Refinery Utilization, Glut Continues To Occur

As has been the case since December, crude oil inventories remain above their normal levels and consistently above last year’s levels.  Indeed, crude oil inventories increased over the latest week, reversing the decline that they experienced during the first week of this month.  This, combined with the continuing economic weakness in China and other places, continues to apply pressure on oil prices.

At the end of the week ended August 14, 2015, the nation’s commercial inventories of crude oil contained a total of 456.2 million barrels.  This represents an increase of 2.6 million barrels over the 453.6 million barrels that these same inventories contained at the end of the week ended August 7, 2015.  It is also significantly higher than the 362.5 million barrels that were contained in these inventories at the end of the corresponding week of last year.  It is important to note that this latest week’s increase in inventories reverses the trend of inventory draw downs that has been occurring since the middle of July.  This is likely one reason why oil prices declined this week.

Gasoline inventories have generally been much more steady than oil inventories over the past several months, although they have been steadily declining since the middle of July.  This latest week was no exception.  At the end of the week ended August 14, 2015, the nation’s inventories of motor gasoline contained a total of 212.8 million barrels of gasoline.  This represents a decline of 2.7 million barrels from the 215.5 million barrels that these same inventories contained at the end of the week ended August 7, 2015.  It is also slightly lower than the 213.3 million barrels that were contained in these inventories at the end of the corresponding week of last year.

One reason why both crude oil inventories increased and motor gasoline inventories decreased is that refineries processed less crude oil during the latest week, resulting in less motor gasoline being supplied to the market.  During the four-week period ended August 14, 2015, the nation’s oil refineries processed an average of 16.910 million barrels of crude oil per day.  This compares to an average of 16.934 million barrels per day processed during the four-week period ended August 7, 2015.  However, it is still on average more oil than was processed during the same period of last year.    During the four-week period ended August 15, 2014, the nation’s oil refineries processed an average of 16.394 million barrels of crude oil per day.

As already mentioned, this reduction in crude oil processing also resulted in the nation’s refineries supplying less gasoline to the market.  At the end of the four-week period ended August 14, 2015, the nation’s refineries supplied an average of 9.604 million barrels of motor gasoline to the market.  This compares to the average of 9.615 million barrels of motor gasoline per day supplied during the four-week period ended August 7, 2015.  However, this still represents a substantial increase over the corresponding period of last year.  During the four-week period ended August 15, 2014, these same refineries supplied an average of 9.016 million barrels of motor gasoline per day to the market.

In conclusion, the American market continues to be oversupplied with oil, although some of this week’s inventory build can be attributed to lower refinery utilization.  Overall though, it is likely that oil prices will continue to be pressured.