Keep an Eye on Refinery Utilization

Keep an Eye on Refinery Utilization

If you're trading crude oil short term and you don't watch refinery utilization, you should.

Getty Images

Every week like clockwork, The U.S. Energy Information Administration (EIA) puts out the Weekly Petroleum Status Report. The two main parts of this report watched by retail traders are the change in U.S. crude stockpiles (excluding the Strategic Petroleum Reserves) and the change in gasoline reserves and that’s a good start. The level of builds or draws from those two very important storage stockpiles move markets, especially if it’s a surprise, but there is another component to the report that is ignored but can be used as a guide to those changes. The Refinery Utilization number (RU) can help a trader look out a week or two and anticipate whether we are going to see a build in crude stockpiles or a crude draw.



Refineries are the first point of demand for crude oil. There is relatively no demand for raw barrels of crude oil, most of the demand is for refined products. RU tell us how much of the U.S. refinery capacity is currently being used.  By default, that makes it a proxy for crude oil demand. When the refineries are running full out, at 95-97% of full capacity, stockpiles are being drawn down and it’s hard for drillers to keep up. Prices therefore rise, and the reverse is true when RU is low or falling, prices tend to follow with a bit of a lag. You can see the relationship clearly in the chart where RU is overlaid (with a bit of an offset) with CL’s ​price.


(Chart is through 3/04/2019)

There are 2 caveats to this theory. One is during the "turnaround", which is when refineries are shutting down parts of their operations to retool for summer or winter blend gasoline, and during geopolitical price moves. But a look at the chart in this piece speaks volumes. All else equal, RU can help speculators choose a direction. 

The information contained above may have been prepared by independent third parties contracted by Nadex. In addition to the disclaimer below, the material on this page is for informational and educational purposes only and should not be considered an offer or solicitation to buy or sell any financial instrument on Nadex or elsewhere. Please note, exchange fees may not be included in all examples provided. View the current Nadex fee schedule. Nadex accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representations or warranties are given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk and any trading decisions that you make are solely your responsibility. Trading on Nadex involves financial risk and may not be appropriate for all investors. Past performance is not necessarily indicative of future results. Nadex contracts are based on underlying asset classes including forex, stock index futures, commodity futures, cryptocurrencies, and economic events.

Trading can be volatile and investors risk losing their investment on any given transaction. However, the design of Nadex contracts ensures investors cannot lose more than the cost to enter the transaction. Nadex is subject to U.S. regulatory oversight by the CFTC.