US refinery runs languish below five-year averages

Refinery inputs have declined between 13 per cent and 17 per cent during the pandemic

Oil storage tanks stand in this aerial photograph taken above Cushing, Oklahoma, U.S., on Tuesday, March 24, 2015. The fastest oil-inventory growth on record at the main U.S. hub may be about to end, easing concern that storage limits will be strained. Photographer: Daniel Acker/Bloomberg

Gross inputs to US refineries, also referred to as refinery runs, are languishing below five-year averages due to reduced demand during the Covid-19 pandemic, according to the Energy Information Administration.

Demand for products such as gasoline, distillate and jet fuel plummeted below long-term trends since April as air travel and ground transportation came to a halt to contain the outbreak.

Refinery inputs remain between 13 per cent and 17 per cent below the five-year average.

Gross inputs tor refineries reached 15.3 million barrels per day in the week ending August 21, the highest level since the Covid-19 crisis began, according to the Washington-based EIA. However, this high point was still 14 per cent lower than the five-year average, the EIA said.

Refinery inputs fell 2 million barrels per day to 13.4m bpd in the first week of September and were down 16 per cent against the long-run average.

Refinery runs have since stayed below than July and August levels, averaging a little more than 14m bpd through to October 23, 17 per cent below five-year levels.

Slowing economic activity also weighed on the demand forecast globally, as the pandemic led to factory closures and millions of job losses across the US.

"Since the end of August, the continued effects of the pandemic in the United States and in crucial destinations for US petroleum exports in Europe and Latin America, in addition to seasonal factors, have resulted in continued lower refinery runs,” the EIA said in its report.

The US is the world’s largest producer of crude, with production surging above 12m bpd in 2019 and forecast to reach 13m bpd in 2020. However, output has declined as several independent shale producers scaled back production or went bankrupt earlier this year.

Constraints in storage capacity prompted West Texas Intermediate, the key gauge for US oil, to fall as low as -$40 per barrel in April, ahead of the expiry of the May contract.

The collapse in prices hit the US energy industry hard, leading to the closure of refining facilities. Oil prices have since recovered steadily as prospects of an economic recovery and cuts by Opec+ helped draw down inventory levels.

WTI fell 4.25 per cent to $37.14 per barrel on Friday, while Brent was down 3.62 per cent at $39.45 per barrel as markets factored in the prospects of Democratic candidate Joe Biden becoming the next US President.

Mr Biden is known to favour a greener agenda, and has pledged to bring the US back into the fold of the Paris Climate Agreement, which Donald Trump walked away from in 2017. The US formally exited the agreement on Wednesday.

"The economic effects of the pandemic drove the decline in diesel demand, which began largely in May. Since May, demand for some products, particularly gasoline, has increased somewhat but remains below historical levels,” the EIA said.

US crude production will remain at about 11m bpd, with the 13m bpd levels unlikely to be reached for “a while”, US energy secretary Dan Brouillette said last week.