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Refining utilization rates back to 12-year highs

Refining utilization rates back to 12-year highs

Posted on: 3/14/2018 | Author: ATB Financial's Economics + Research Team

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Yesterday, The Owl compared capacity utilization rates in Canadian oil and gas extraction to the all-industry average. The comparison demonstrated the rate's current rise, landing at its highest point in a decade in the fourth quarter of last year. But oil and gas extraction is only part of Canada’s energy economy. The other story is refining activity.

The capacity utilization rate is the ratio of an industry's actual output to its estimated potential output. The higher the rate, the less slack there is in the system. The purple line in the graph below is the capacity utilization rate for petroleum and coal product manufacturing, almost all of which would be refined petroleum products. The blue line is Canada’s all-industry average. (Note: the data are for all of Canada, not just Alberta, however Alberta is home to a significant amount of refining.)

The striking feature of the graph is the high rate of capacity utilization in petroleum refining between 1997 and 2005. For much of this period, spare capacity in Canada’s refineries was close to zero. The rate reached a peak of 98 per cent in 2002. After that, refining capacity dropped much closer to the all-industry average, hovering above and below 80 per cent.

Recently, refining utilization rates have risen back to 12-year highs. Part of this is because of the difficulty Canadian oil exporters are having in shipping product to refineries in the U.S. Pipeline constraints are pushing Canadian oil back to Canadian refineries. That’s good news for refiners, yet bad news for oil producers and exporters who are missing out on higher prices in the U.S. and other global markets.

Industrial capacity utilization rates, graph​ ​

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