Slide 9 of 27

As the average production curve shows, refiners normally increase distillate production in the fall to top off stocks in preparation for winter. Because excess gasoline is also produced during this time, refiners don’t want to run through the entire winter at these high distillate production rates, so runs generally fall back in January as high distillate demand draws down the stocks that were built previously.

• Prior to winter 1996/97, distillate stocks were very low, and refiners produced an unusual burst of distillate in the fall months to try to meet growing demand. Fortunately, the weather was warm, so those high production levels did not have to be continued.
• During summer of 1997/98 refiners were running at maximum capacity in many months to meet gasoline demand, so distillate production was high. As winter approached, production increased, but not to the same degree as in 1996/97.

In spite of very high stocks, distillate production remained relatively strong this past summer as refinery runs stayed high to meet gasoline demand.

But in order for stocks to fall back into the normal range -- even with a normal winter -- production will have to fall back as shown.