Slide 5 of 27

This slide shows the average U.S. distillate stock pattern -- building in the summer and fall, then being drawn down through the winter and early spring.

• Actual stocks have been running much higher than normal this year. We went into winter 1996/97 with extremely low stocks, but subsequent mild weather and strong gasoline production during the summer of 1997 that resulted in co-production of distillate, allowed stocks to recover by the beginning of last winter (1997/98).

Warm weather last winter resulted in high end-of-season distillate stocks. We had a stock draw during December 97, January 98 and February 98 of about 12.7 million barrels. The prior 5-year average draw for that period is 32.4 million barrels, or 2.5 times what actually occurred. (In other words, the draw was only about 40% of normal.)

• It is possible for inventories to return to more normal levels this winter as the STEO forecast shows, partially as a result of higher projected demand this heating season over last year. But will they? We are beginning winter with one of the highest stock levels in many years and we may be left with extra inventory at season’s end.

Preliminary end of September stock data indicate we are at a 12-year high for the beginning of the heating season -- the last time stocks were this high was in 1986.