Gov’t Shutdown’s One-Two Punch on US Refiners

US Crude Oil inventories, excluding the Strategic Petroleum Reserve (SPR), rose 6.8 million barrels during the week ended 04Oct13.  The total of all US stocks (crude oil, refined products and the SPR) rose by 1.8 million barrels over the same week. The tables below are provided courtesy of the US Energy Information Administration (EIA) at http://www.eia.gov/petroleum/supply/weekly/.

Stocks, EIA, 04Oct13

A review of US Refinery Activity for the four weeks ending 04Oct13 shows moderately strong refinery utilization with continued favor towards gasoline configurations. Refinery utilization is down slightly from the 27Sep13 average reflecting post summer turnaround activity and economic capacity optimization.

Refinery Activity, EIA, 04Oct13

So what are the impacts of the gov’t shutdown on the US Energy sector? The immediate impact is reduced refined product demand, primarily in the transportation fuel sector resulting from:

  1. reduced commuting by furloughed federal employees
  2. modified consumer behavior due to the uncertainty of the future
  3. reduced tourism at all federal venues

Reduced refined product demand is the first punch, and it is immediate. The second punch involves the impact on US domestic drilling activity, specifically the exploration and production permitting process. The second punch is not immediate and will take time to play out.

Of all sectors in the petroleum supply chain, refiners hold the greatest risk of a whip-saw event as a result of the gov’t shutdown. Reduced refined product demand from the first punch should result in downward price pressure on refined products, followed by a corresponding and lagging downward price pressure on refinery inputs. Delays in the exploration and production permitting process will likely exert upward pressure on refinery inputs with a 6 to 12 month lag.

We’ll keep an eye on the numbers, assuming the EIA continues to report.

Posted in Crude Oil, Energy, NY Harbor ULSD, RBOB Gasoline, Uncategorized

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