Released on September 9, 2004
(Next Release on September 15, 2004)

Refiners Don’t Hold Back
Even in the midst of the hurricane season, refiners continue to run a lot of crude oil through their refineries. For the week ending September 3, 2004, U.S. refineries used an average of 16.1 million barrels per day of crude oil, the fourth highest weekly average ever. This continues a trend seen in recent weeks, with each of the last three weeks averaging more than 16 million barrels per day of crude oil inputs to refineries, and ranking in the top 10 weeks of U.S. crude oil inputs. Last week, refinery crude oil inputs were relatively high across all regions, although they were particularly high in the Rocky Mountain region (second highest weekly average ever) and the Gulf Coast (eighth highest weekly average ever).

With crude oil prices relatively high recently (the spot price for West Texas Intermediate crude oil has closed above $40 per barrel every trading day since July 14), it might seem a little unusual for refiners to use crude oil at such historically high rates. However, the story this summer has been one in which refiners continue to run a lot of crude oil through their refineries. Out of the top 25 weekly averages ever for U.S. crude oil refinery inputs, 17 have occurred this summer (May through the week ending September 3). But with spot gasoline prices peaking in May and with heating oil spot prices in August above prices seen during most winters, refiners have found it advantageous to continue to produce a lot of refined products, particularly gasoline, distillate fuel (which includes heating oil and diesel fuel), and jet fuel. Demand for all of these products has been strong, with distillate fuel and jet fuel recently averaging especially strong growth over year-ago demand levels. Distillate fuel demand over the last four weeks has averaged 6.8 percent above year-ago levels, while jet fuel demand has averaged 8.4 percent growth over the same period. Strong demand growth (total U.S. oil demand last week was the fifth highest weekly average ever) has clearly encouraged refiners to continue producing refined products at high rates, despite the high crude oil prices.

Earlier in the summer, crude oil imports were sufficient to supply refineries with the crude oil they needed, while at the same time building inventories relative to normal levels. U.S. crude oil inventories, which had been at or below the average range from November 2003 through May 2004, suddenly were nearing the middle of the average range in June and July. However, with the latest sustained surge in crude oil refinery inputs, refiners have needed to draw down inventories in order to maintain these high refinery rates. As of September 3, crude oil inventories are once again near the bottom end of the average range for this time of year. With crude oil inventories usually falling through much of September, at least until some refineries begin their extensive fall maintenance programs, crude oil inventories may be nearing the bottom of this latest cycle.

Regardless of what happens this fall with regards to refinery operations, it is clear that refineries attempted to meet strong oil demand by continuing to produce at high rates throughout the summer. Of course, high product prices and the resulting high refining margins were a main economic driver for this behavior. With EIA’s latest Short-Term Energy Outlook (released on September 8) forecasting continued high product prices through 2005, it appears that this incentive for refiners may continue to persist for a while longer.

Retail Gasoline Prices Decrease By 1.6 Cents
The U.S. average retail price for regular gasoline fell by 1.6 cents per gallon from the previous week to reach 185.0 cents per gallon as of September 6, 13.3 cents higher than this time last year. Retail regular gasoline prices fell on the West Coast by 1.9 cents to reach 204.1 cents per gallon, which is 1.4 cents higher than last year. Prices in California also fell by 2.7 cents to 207.3 cents per gallon, which is 1.2 cents lower than this time last year.

Retail diesel fuel prices fell 0.2 cent this week to a national average of 186.9 cents per gallon, which is 38.1 cents per gallon higher than a year ago. Price were mostly down this week, with the Midwest and Rocky Mountains seeing increases of less than half a penny. California prices remained the highest, falling 1.2 cents to average 213.6 cents per gallon.

Propane Inventories Surge Higher
U.S. inventories of propane continued to surge higher with a weekly build that measured 2.2 million barrels, boosting the nation's primary supply of propane up to at an estimated 59.7 million barrels as of September 3, 2004. Following the start of one of the most mediocre stockbuilds in recent years, the recent surge in propane inventories, if sustained throughout the remainder of the build season, may begin to dispel any notions of inventories not attaining levels that are considered adequate in the run-up to coming winter heating season. Regional inventory gains continued strong in the Gulf Coast with a 1.6-million-barrel increase last week, while inventories in the Midwest followed with a 0.8-million-barrel increase during this same period. The combined Rocky Mountain/West Coast and East Coast regions remained unchanged. Propylene non-fuel use inventories rose 0.2 million barrels to 2.7 million barrels last week, accounting for a slightly higher 4.5 percent of total propane/propylene inventories from the prior week's 4.3 percent share.

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