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Oil Imports Down, Refineries Rely on Inventory Drawdowns

January 12, 2007

WASHINGTON, D.C. --- The Energy Department reported that for the week ending Jan. 5, crude oil inventories declined by 5 million barrels. At the same time, total gasoline inventories rose by 3.8 million barrels, including an increase of 1.6 million barrels in blending components. Total distillate fuel inventories rose by 5.4 million barrels, with major increases in all categories. The Energy Department's Energy Information Administration (EIA) stressed that crude oil inputs into refineries increased while imports declined substantially. "With domestic production relatively flat from week to week, additional supply for refineries must come from either imports and/or drawdowns from inventories. If crude oil inputs into refineries increase, and imports decrease significantly, a large crude oil inventory drawdown must occur," the EIA reported. "Given that crude oil inventories were above the average range for this time of year, there was plenty of crude oil available to draw upon, making the large crude oil draw this week not as alarming as it may first appear."What's more, the EIA reported, the draw last week was a continuation of draws seen over the past several weeks, and inventories still remain "above the average range, even after the latest draw, albeit by much less than they were several weeks ago." The EIA added that the build in gasoline and distillate fuel inventories is not too surprising, in light of the recent rise in crude oil inputs to refineries. "Even though gasoline production declined this week, at nearly 9.2 million barrels per day, it remains very high for the winter," the EIA said. "Also, imports of both gasoline and distillate fuel are relatively high, adding to supply. As a result, inventories are building, as supply has outpaced demand."During most of the fourth quarter of 2006, inventories for both gasoline and distillate fuel fell more than usual. Total gasoline inventories went from above the average range to below the average range, while total distillate fuel inventories went from well above the average range to the middle of the average range. As a result, the refinery margin -- the difference between the price refiners can sell the products for and the price they pay for crude oil -- increased. This provided an economic signal to add supply of these fuels to the market. The result, according to the EIA: an increase in refinery production and product imports, which ultimately leads to a rebuilding of product inventories.
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