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Released on November 6, 2002
(Next Release on November 14, 2002)
Cold Weather Heats Up Distillate Demand
The first bout of cold weather that blanketed the Upper Plains with snow and pumped colder-than-normal temperatures into the Midwest and Northeast regions over the last several weeks is expected to jump start distillate fuel demand over the next several weeks that up until now had been rather lackluster. Through the week ending November 1, 2002, year-to-date demand for distillate fuel trailed the same prior year level by 3.9 percent, partly reflected warmer-than-normal weather earlier in the year and a slowing in the economic recovery that occurred during the latter part of the third quarter of this year. But the recent cold snap sent distillate fuel demand the last two weeks to above 4 million barrels per day, the first time two consecutive weeks have registered demand that high since March 2001. The most recent data, based on weekly surveys for October, show distillate demand up 4 percent over September to an average of 3.8 million barrels per day.
While the recent turnaround in distillate demand may not completely reverse the year-to-date slide in overall demand, the continuing cold spell may significantly whittle away at the relatively small gap in demand over the latest four-week period. With cold weather continuing into the early weeks of November, distillate fuel demand is expected to make modest gains during the month compared with this time last year when weather was much warmer than normal. However, since distillate fuel is comprised of both home-heating oil and diesel fuel, any increase in heating oil demand may be partially offset by continued lackluster demand for diesel fuel. Heating oil demand, or high sulfur distillate fuel, comprised about 30 percent of total distillate fuel demand during 2001.
Since October marks the first month of the heating season when demand is relatively low, the upturn in heating demand seemingly has had only a moderate impact on heating oil markets with respect to prices or inventories. However, the up tick, combined with a sharp, storm-induced dip in distillate fuel production, has been sufficient to push inventories below the lower end of the normal range. Regionally, heating oil inventories are also low. East Coast (PAD District I) inventories of heating oil fell 5 percent during the month to end the week of November 1, 2002 at 36.9 million barrels. But in New England and the Central Atlantic regions, where heating oil consumption is greater than the rest of the country combined, inventories were down more than 16 percent and 5 percent, respectively, during the month. Residential heating oil prices for the period ending October 7th and November 4th reported a modest gain of 2.2 cents per gallon in the East Coast, while prices in New England and the Central Atlantic areas reported respective gains of 1.1 cents and 2.9 cents per gallon during this same time. But where prices will go from here rests largely with how much distillate fuel demand will heat up this winter.
Retail Gasoline and Diesel Fuel Prices
The U.S. average retail price for regular gasoline rose last week, increasing by 0.4 cent per gallon as of November 4, to end at 144.8 cents per gallon. This price is still 24.2 cents per gallon higher than last year. This is the fifth time in the last six weeks prices have risen during a season of normally decreasing gasoline prices.
Retail diesel fuel prices fell last week for the second week in a row, decreasing by 1.4 cents per gallon to a national average of 144.2 cents per gallon as of November 4. Prices are expected to remain at these levels or higher throughout the season in part due to low distillate fuel inventories. Retail diesel prices were down throughout the country, with the largest price decrease occurring on the Gulf Coast, which saw the price fall by 2.3 cents per gallon to end at 139.4 cents per gallon. There was a price increase seen in New England, where prices gained 0.1 cent to end at 149.7 cents per gallon.
October Propane Stockdraw Atypical
October typically represents one of the slowest months of the year for propane market activity. October is sandwiched between the hectic summer stock-building season and the bustling winter stock-draw-down season. During this period, propane inventories can just as easily show continued modest stock builds as they can show modest stock draws, depending on such factors as weather and fall crop drying demand. But propane market activity during October 2002 was atypical with inventories showing one of the largest stock draws in recent years. Last week's stock draw that measured 1.7 million barrels contributed to preliminary data for U.S. inventories of propane falling by 6.4 million barrels during October 2002, the largest stock draw for this month since 1985, and the second largest ever for October. The sharp plunge in propane inventories, partly reflecting colder-than-normal weather during October, significantly eroded the inventory cushion that was built up over the summer months. However, U.S. inventory levels remain at levels that are still considered by many industry observers as adequate for this time of year.
Regional inventories during October were lower in the Midwest and Gulf Coast regions with respective declines of 0.8 million barrels and 0.7 million barrels, while inventories in the East Coast were down a modest 0.2 million barrels during this same period. Prior to last week, East Coast and Gulf Coast inventories had maintained levels above the average range for most of the year, while Midwest inventories had stayed within the average range during this same period. But following October's sharp declines, East Coast and Gulf Coast inventories still remained above the average range while Midwest inventories moved lower but remain within the average range.
Note: Text from the previous editions of "This Week In Petroleum" is now accessible through a link at the top right-hand corner of this page.
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