The pig and the python: How American refineries are dealing with the oil glut

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By Amanda Rayborn and Luciano Battistini, Platts

Record US crude oil inventory levels in 2015 reminds us of a pig crossing paths with a python. The pig is consumed by the snake, bulging in the reptile’s stomach as it goes through the digestive process, and is a handy parable for oil markets.

In 2015 US refineries took unprecedented bites out of the US crude oil glut that was largely the result of higher domestic production levels. But while these python-like refineries have increasingly been built to take a more variable diet, the pigs are getting larger and possibly outgrowing the refineries’ ability to digest the upcoming portions.

If we follow the path of the American oil python as it chomps down on the 2015 crude glut, we’re left with questions about what it means for 2016. Will the fat oil glut prove too big for the mighty refinery python? Or will the refining sector just end up with a New Year’s hangover and a bad case of indigestion?

Assessing the prey

The reticulated python of Southeast Asia is known to swallow its prey whole after squeezing the life out of it. However, before starting the swallowing process, the python must wait for the right opportunity to ambush its prey, wrap around it and clench hard.

The refinery python found easy prey in 2015. US crude oil production has grown so much that it is higher than the rest of the global incremental growth combined. Total US crude stocks reached record highs in the first quarter of 2015, resulting in record refinery utilization levels. In just the PADD III region along the US Gulf Coast, year-to-date crude oil stocks jumped 19% compared to year-ago levels to stand at 230 million barrels – or 27% higher than the five-year average.

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