Released on March 2, 2005
(Next Release on March 9, 2005)

Walking Manny to Pitch to Ortiz
March is here, and the Nation’s thoughts turn to baseball spring training and warmer weather. The approaching end of the heating fuel season brings contemplation of the switch towards the key transportation fuel season. Truckers and owners of diesel cars have been feeling the pinch lately, as the national average weekly diesel price has been higher than the corresponding gasoline price since August 30, 2004. Petroleum market analysts who are also baseball fans familiar with the notorious Red Sox lineup may see the decision made by car buyers choosing diesel fuel over gasoline as akin to the choice of intentionally walking Manny Ramirez (World Series MVP) to pitch to David Ortiz (American League Championship Series MVP). Neither has been a particularly attractive option lately for consumers or opposing pitchers.

Nationally, the gap between diesel and gasoline prices has been wider this winter than in previous years. The diesel premium has averaged 14.3 cents since the beginning of October through the present, and this current week’s difference is 19.0 cents per gallon. This unusually large difference in prices was first discussed in the November 3, 2004 edition of This Week In Petroleum . As explained in that issue, heating oil and diesel fuel are closely related products, with the main difference being that diesel fuel has lower sulfur content than heating oil. As a result, diesel and heating oil are produced together, and seasonal increases in heating oil demand can put pressure on the diesel fuel market as well. However, the average premium of diesel over gasoline retail prices this past October through the end of February dwarfs that of the previous ten years EIA has been collecting data. This can be largely attributed to high gasoline inventories and low distillate inventories this winter. While higher crude oil prices have pushed up retail prices in both the gasoline and distillate markets, lower product inventories for distillate fuels (diesel and heating oil) have put further upward pressure on those markets as robust gasoline inventories have eased retail gasoline prices, at least compared to diesel prices. While gasoline inventories have been higher than the average stock range, distillate inventories have just been skirting along the lower edge of the normal range. Another key difference this year is increased global diesel demand, especially increased Chinese demand, which has sharply tightened the worldwide distillate fuel balance, thereby stoking competition, at the margin, between the Atlantic Basin and China for incremental barrels. Also, through part of January, U.S. distillate demand was showing a much larger percentage increase from last year than gasoline.

Although it is difficult to say when gasoline retail prices will overtake diesel prices this spring, history and current market conditions suggest that this will happen sometime in the beginning of April. The Short-Term Energy Outlook forecast has April retail diesel at 199.9 cents per gallon and retail regular gasoline at 202.1 cents per gallon. The typical seasonal demand pattern calls for decreasing distillate demand as the weather warms and rising gasoline demand as people increase their travel, leading up to the unofficial beginning of the summer driving season on Memorial Day weekend. While there may be some relief ahead for diesel consumers, steady high crude oil prices promise to keep a floor under all petroleum product prices in coming months.

U.S. Average Retail Diesel Price Increases 10 Cents
The U.S. average retail price for regular gasoline increased this week by 2.3 cents from the previous week to reach 192.8 cents per gallon as of February 28, 21.1 cents higher than this time last year. Prices were mostly down, with the Midwest seeing a gain of 4.6 cents to 191.8 cents per gallon. The West Coast posted the highest regional price of 212.3 cents per gallon, up 2.7 cents from the previous week and 10.2 cents higher than last year. Prices in California gained 2.6 cents to 217.6 cents per gallon. Retail prices on the East Coast gained 0.2 cent to 188.9 cents per gallon, which is 21.3 cents higher than last year.

Retail diesel fuel prices gained 9.8 cents last week to 211.8 cents per gallon. Prices were up throughout the country, with the Midwest seeing the largest regional increase of 11.1 cents to 206.4 cents per gallon. California prices increased by 11.7 cents to 237.6 cents per gallon, which is 43.7 cents higher than this time last year. Prices on the West Coast gained 9.1 cents to 241.2 cents per gallon. East Coast prices rose 9.0 cents to reach 211.7 cents per gallon.

Residential Heating Oil Prices Increase While Propane Prices Sit Still
Residential heating oil prices increased for the period ending February 28, 2005. The average residential heating oil price increased by 5.9 cents from last week to reach 204.3 cents per gallon, an increase of 44.0 cents from this time last year. Wholesale heating oil prices increased 10.4 cents to reach 151.9 cents per gallon, an increase of 48.2 cents compared to the same period last year.

The average residential propane price remained flat at 171.7 cents per gallon. This was an increase of 18.7 cents over the 153.0 cents per gallon average for this same time last year. Wholesale propane prices increased 2.5 cents per gallon, from 82.8 cents to 85.3 cents per gallon, a gain of 10.4 cents compared to the same period last year.

Above Average Draw on Propane During February
Preliminary inventory data for February show primary stockholders withdrew an estimated 10.2 million barrels from storage during February, a level that was over 24 percent above the 5-year average draw for this month. However, the strong February stockdraw was in contrast to February temperatures that were above normal in all of the major propane consuming regions in the Midwest and East Coast, possibly indicating other factors, such as strong petrochemical feedstock demand, may have contributed to the above average stockdraw. With last week’s 2.3-million-barrel stockdraw, U.S. inventories of propane fell to an estimated 31.6 million barrels as of February 25, 2005, a level 5.7 million barrels above the comparable week last year. Weekly imports surged to their highest level since the week ending September 24, 2004, particularly into the East Coast and Gulf Coast regions where imports likely contributed to, or even offset, some portion of the weekly stockdraw. This may be the case with East Coast inventories that gained 0.2 million barrels last week despite some of the most severe winter weather of the heating season. But inventories continued lower in the Midwest and Gulf Coast regions that logged respective 1.0-million-barrel and 1.3-million-barrel declines. During this same period, the combined Rocky Mountain/West Coast regions edged lower by 0.1 million barrels. Propylene non-fuel use inventories plunged 0.4 million barrels last week to 3.5 million barrels, accounting for 11.1 percent of total propane/propylene inventories, down from the prior week’s 11.5 percent share.

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