Released on February 4, 2004
(Next Release on February 11, 2004)

Dominoes Redux
About this time last year, U.S. oil markets were in almost the same state as they are today. At that time, a disruption in Venezuela caused by an oil workers’ strike caused crude oil imports to drop, which led to a reliance on crude oil inventories by refiners. Of course, that led to crude oil inventories reaching low levels, thus forcing refiners to cut back on production, which, in turn, led to a draw in product inventories to make up for the lost refinery production. This was highlighted in the January 15, 2003 edition of This Week In Petroleum, which was titled “Dominoes.” While the root cause may be different this year, the pattern we are seeing in oil markets is eerily similar to that seen a year ago.

Oil analysts may have been initially surprised when they saw the inventory data for the week ending January 30. A crude oil inventory increase of 7.9 million barrels, along with a 6.8-million-barrel decline in distillate fuel and a 0.4-million-barrel decline in gasoline inventories (they typically build significantly in January) may have been more extreme than what analysts were expecting, but the direction should not have been. With crude oil inventories below 264 million barrels as of January 23, there was likely little room for them to go down too much further. At the same time, reports that crude oil imports towards Asia were slowing after being relatively strong in recent months implied that the United States might see additional shipments arrive. One large company reported that they received shipments on both the first day and the last day of last week’s reporting period. These timing issues sometimes confuse analysis of weekly data, which is why it is often more important to look at trends in the weekly data as opposed to a one-week snapshot. Looking at the data over the last several weeks, we can clearly detect the same “domino effect” that occurred last year. Following a drop in crude oil import levels, crude oil inventories fell, which precipitated a drop in crude oil refinery inputs. Over the last four weeks, crude oil refinery inputs have consistently dropped, such that the average for the week ending January 30 was 879,000 barrels per day less than averaged during the week ending January 2. As a result, we have seen large declines in distillate fuel inventories over the last two weeks as well as two weeks of unseasonable draws from gasoline inventories. Fortunately for distillate fuel oil consumers, inventories were relatively high before the recent declines so that there should still be enough of that product available for the winter. However, gasoline inventories are once again at low levels, and with retail prices in January at their highest level ever for that month (not adjusted for inflation), this may point to a tight gasoline market this coming spring.

U.S. Retail Average Gasoline Price Falls Slightly
The U.S. average retail price for regular gasoline decreased last week by 0.6 cent per gallon as of February 2 to reach 161.6 cents per gallon, which is 8.9 cents per gallon higher than a year ago. This marked the first week retail prices have decreased since December 29, 2003. Retail regular gasoline prices were mixed throughout the country last week, with the Midwest’s large decrease of 3.8 cents to hit 157.9 cents per gallon driving the fall in the national price. California prices averaged 175.3 cents per gallon after gaining 2.7 cents this past week, and average West Coast prices rose by 2.2 cents to reach 172.5 cents per gallon.

Retail diesel fuel prices decreased by 1.0 cent per gallon as of February 2 to a national average of 158.1 cents per gallon, which is 3.9 cents per gallon higher than a year ago. Retail diesel prices were mixed throughout the country last week, with prices continuing to edge upwards in the Northeast and West Coast. New England saw a price increase of 0.9 cent to hit 178.6 cents per gallon, which is 14.3 cents higher than last year. California prices rose 1.6 cents to reach 169.6 cents per gallon.

Residential Heating Fuel Prices Slow Their Climb
Residential heating oil prices increased modestly for the period ending February 2, 2004. The average residential heating oil price gained 0.3 cent from last week to reach 162.5 cents per gallon, an increase of 9.0 cents over this time last year. Wholesale heating oil prices decreased 8.3 cents to 96.8 cents per gallon, a decrease of 5.3 cents compared to the same period last year.

The average residential propane price rose 0.1 cent, increasing to 153.7 cents per gallon. This was an increase of 10.0 cents over the 143.7 cents per gallon average for this same time last year. Wholesale propane prices decreased 4.9 cents per gallon, from 80.1 cents to 75.2 cents per gallon. This was a decrease of 3.6 cents from the February 3, 2003 price of 78.8 cents per gallon.

Cold January Forces Above Average Propane Stockdraw
With January's colder-than-normal temperatures, particularly in the Midwest and East Coast regions, it was not unexpected to see an above-average stockdraw for this month that totaled 16 million barrels, sending U.S. inventories of propane down to below an estimated 34.0 million barrels as of January 30, 2004. Although slightly above January's 5-year average stockdraw of about 15 million barrels, the monthly decline in inventories fell short of reaching the January record of 18.7 million barrels set last year. Nevertheless, primary inventories of propane remain within the average range, albeit near the lower limit of the range for this time of year.

The frigid weather that continued well into the final week of January pushed regional inventories lower in all the major areas last week. The Midwest accounted for the largest weekly draw with 1.6 million barrels, followed by a nearly 0.8-million-barrel draw on the Gulf Coast. With last week's stockdraw, Gulf Coast propane inventories, at 13.3 million barrels, hit a new record low for this month, falling below the 13.7-million-barrel level of January 2000. The all-time observed low for Gulf Coast inventories was 10.9 million barrels set during February 1997. The East Coast also saw a hefty stockdraw that totaled nearly 0.4 million barrels. Moreover, compounding the cold weather gripping the Northeast was the shutdown of the Texas Eastern Products Pipeline (TEPPCO) last week near Davenport, New York, due to a fire. The fire forced TEPPCO to shutdown a segment of the line, resulting in the closure of both the Selkirk and Oneonta, New York terminals. This is the second TEPPCO pipeline outage since last summer that caused marketers in the region to secure propane supplies from alternative sources during these periods.

Propylene non-fuel use inventories remained relatively unchanged last week at about 0.7 million barrels, a level that accounted for a 2 percent share of total propane/propylene inventories.

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