Recession Alarm: Crude Processing At US Refiners Falls The Most Since Financial Crisis

There are more signs the US economy is rapidly deteriorating. This time it's coming from the energy sector.

A new report from Reuters' Senior Market Analyst John Kemp reveals how US refiners have cut the volume of crude processed this year to levels not seen in a decade as fuel stockpiles remain at elevated levels, suggesting a manufacturing and freight recession could be materializing.

US refineries slashed an average of 247,000 barrels per day since January 2019 compared with the same period in 2018, according to data from the US Energy Information Administration (EIA).

In the latest EIA report titled "Weekly petroleum status report," Kemp said YTD processing rates have fallen for the first time since 2011, and by the most since the recession of 2008/09.

Refinery crude consumption has dropped by 56 million barrels so far compared with the same period in 2018.

Kemp noted that refiners cut processing volumes during the regular maintenance season in March and April and have never recovered since.

And here's evidence that the consumer could be weakening even though fuel prices and interest rates remain low:

"Processing has remained at or below prior-year rates throughout the summer driving season, normally the highest demand of the year," Kemp said.

This could suggest that manufacturing and freight slowdowns are starting to have spillover effects on consumer spending habits.

Kemp said:

"Philadelphia Energy Solutions' 335,000 bpd refinery on the East Coast has been shut since a fire and explosion on June 21, which may have contributed to the loss of crude processing.

But processing was already running below prior-year rates before the plant exploded and has been below 2018 rates for 13 out of the last 16 weeks since the start of May.

Refiners on the East Coast have cut processing by an average of almost 120,000 bpd so far this year (mostly due to the Philadelphia explosion).

But they have also reduced processing by 87,000 bpd in the Midwest, 15,000 bpd along the Gulf Coast and 45,000 bpd on the West Coast." 

Despite refiners limiting crude processing this year, gasoline and distillate fuel stocks remain at high levels.

Consumer fuel consumption is stagnating, unchanged compared with last year, hinting that the consumer has been weak for all of 2019. Distillate demand is down slightly on the year as the freight industry stumbles into a possible recession.

Kemp also said:

"Forward refining margins for gasoline and distillates delivered at the end of the year do not provide refiners with any significant incentive to boost processing compared with normal seasonal patterns."

And with the US possibly sliding into a mild recession before election day. Refiners will likely continue limiting crude processing, a direct result of a fragile consumer.