Why is Oil Refinery Utilization Down?

Each Wednesday, the EIA (Energy Information Administration) releases the latest stats on the petroleum industry. And each week, the market reacts to these numbers. This week was no different.

On Wednesday, the market seemed to be keying on the 3.5 million barrel increase in gasoline stocks — more than double what analysts expected. July gasoline prices responded by falling around 1%, but the more interesting stat was the one concerning gasoline refining. Refinery utilization, which normally hovers in the 95% range this time of year, is currently just under 90%. In fact, it’s at the lowest level for early summer in 15 years. Lower even than 2006, when the refiners were still trying to recover from Hurricane Katrina.


What the heck?

There is plenty of oil to refine, with crude oil inventories up. Demand is certainly healthy (or ridiculous, depending on your point of view) with gasoline inventories at a lower than average level, and actual measured demand tracking a little higher than last year. The financial incentive is there with refiners seeing (very) high margins due to high gasoline prices (we know this from the crack spread). You’d think they’d be pumping as much refined gas out as possible. After all, it