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Fuel Marketer Intelligence: Supply Chain Dynamics to Retail Fuel Prices

A 10-year seasonal analysis of crude net inputs at US refineries using federal data finds the year-ended in late March was consistently the most robust, peaking in late July 2015 at 17.075 million bpd, which was more than 4% higher than the comparable year-ago period.

The expanded throughput rate was due to three factors—abundant crude supply, strong products demand domestically and for exports, and greater refining capacity.

Crude oil distillation capacity in the United States began 2016 at 18.044 million bpd, 409,000 bpd or 2.3% above the start of 2015, according to statistics from the Energy Information Administration. In 2015, US refiners averaged a run rate of 91.2%, up from 90.4% in 2014 and above the 88% five-year average and the highest utilization rate since 2004 when it reached 93%.

This time last year West Texas Intermediate crude traded on the New York Mercantile Exchange was two weeks into a rally that pushed the futures contract closest to delivery to 2015’s high at $62.58 bbl reached on May 6. The nearest delivered WTI contract would hold above $55 bbl until early July, with the holders of bullish bets banking on steep declines in US crude output on the belief low market prices and high production costs would force shut-ins.

The magic number was, and still is, for a break below 9.0 million bpd, with domestic production eclipsing the psychologically significant figure in the fourth quarter 2014 for the first time since 1986. Instead, domestic production would remain strong, peaking in April 2015 at nearly 9.7 million bpd, and beginning 2016 at roughly 9.3 million bpd.

WTI futures are now trading below $40 bbl and domestic crude production is beginning April down 7.2% form a year ago near 9.0 million bpd, which is a significant decline. However, US shale oil producers have confounded the world with their resilience, and refiners have ramped up their output to process the bounty.

The drop in procurement costs for refiners in securing crude have been passed onto the consumer in the form of lower prices for heating and transportation fuels, and have bolstered consumer sentiment despite sluggish economic growth. Pure-play refiners have also profited from the lower procurement costs, and for integrated oil companies it has been a bright spot in an otherwise gloomy market environment.

This spring, the gasoline ...