Released on January 30, 2002
(Next Release on February 6, 2002)

Crude Oil Inputs Fall Substantially Last Week
After averaging 14.8 million barrels per day from December through the first half of January, U.S. crude oil refinery inputs had fallen to 14.6 million barrels per day for the week ending January 18. Last week (the week ending January 25) crude oil inputs fell an additional 0.5 million barrels per day, averaging 14.1 million barrels per day (see U.S. Crude Oil Demand worksheet). With relatively high product inventories and low refinery margins, EIA had been expecting a decline in crude oil inputs, maybe even averaging somewhere between 14.0 and 14.5 million barrels per day in upcoming weeks. If so, a prolonged decline in crude oil inputs would reduce refinery production of major petroleum products, such as gasoline, heating oil, and diesel fuel. Last week's data showed declines in refinery production for all three of these major refined products, but the largest decline was seen for jet fuel, which was at the lowest level since the week ending November 23. If refinery production remains relatively low as a result of lower crude oil throughput at refineries, combined with strong demand for these products (more on this below), then a drawdown in product inventories over the next several weeks could be expected.

Crude Oil Imports Decline; Gasoline Imports Remain High
As we had expected, crude oil imports (excluding imports into the Strategic Petroleum Reserve) fell substantially (600,000 barrels per day) last week, averaging 8.5 million barrels per day (see U.S. Crude Oil Imports worksheet). With Iraqi crude oil imports down since early December 2001, and OPEC, along with some major non-OPEC producing countries, agreeing to reduce crude oil production over the first half of the year, it remains unlikely that crude oil imports in the near-term will continue to average above 9 million barrels per day for any significant period. However, gasoline imports remained relatively high last week, averaging 736,000 barrels per day, bringing the average over the last 13 weeks (since the week ending November 2) to 714,000 barrels per day. With the number of cold weather days this winter dwindling, distillate fuel inventories are not likely to be drawn down to low levels this season. Therefore, some companies may be focusing on securing gasoline supplies, via imports at today’s relatively low prices, in order to have readily available gasoline supplies should prices rise over the next few months.

U.S. Oil Demand Continues To Show Underlying Strength?
How can we even argue that U.S. oil demand is showing strength when over the last 4 weeks demand has averaged 900,000 barrels per day lower than over the same period a year ago? The answer lies in last year's demand, which was extraordinarily high. Looking back 2 years to January 2000, we see that oil demand averaged 19.0 million barrels per day, or slightly less than has been averaged over the last 4 weeks ending January 25, 2002. This occurred despite an ongoing recession and a reduction in jet fuel demand as a result of reduced air traffic following the September 11 attacks. As we have mentioned before, comparisons to year-ago demand levels are misleading, as cold weather and high natural gas prices encouraged unusually high demand for distillate fuel and residual fuel. Even with motor gasoline demand over the last 4 weeks down considerably from that seen in December 2001, the 4-week average of 8.2 million barrels per day is 0.8 percent above the amount in the same period a year ago. If gasoline demand grows at a rate of about 1 percent or more, jet fuel demand gradually increases as more flights get added, and distillate fuel demand averages between 3.8 and 4.0 million barrels per day over the next several weeks (assuming the warm trend seen recently along the East Coast doesn't continue), then any decline in refinery production as described above could result in a drawdown in total product inventory levels. This could, in turn, put some upward pressure on retail product prices later this winter or, more likely, this spring.

Crude Oil Stocks Increased Last Week, But Total Product Stocks Declined
For the second week in a row, despite an increase in commercial crude oil inventories (2.1 million barrels), total product inventories declined (0.8 million barrels). The decline in product inventories was led by a 3.3 million barrel decline in "other oils", much of which can be attributed to a propane draw. Smaller declines were also seen in residual fuel oil (0.9 million barrels) and distillate fuel (0.2 million barrels). These declines more than made up for a large increase in gasoline inventories (2.6 million barrels) and a smaller increase in unfinished oils (0.7 million barrels). If both crude oil inputs and imports over the first quarter of 2002 remain lower than seen in the last quarter of 2001, it is possible that crude oil stocks will not increase significantly over this period while product inventories decline.

Most Retail Petroleum Product Prices Fell Slightly Last Week
The national average retail regular gasoline price dropped to 110.1 cents per gallon on January 28, 2002, down 0.4 cent per gallon from last week and 35.9 cents per gallon lower than a year ago. Following 3 weeks of declining prices, the national average retail diesel fuel price rose last week by 0.4 cent per gallon, reaching 114.4 cents per gallon on January 28, 2002, which is 39.5 cents per gallon less than it was a year ago. Residential heating oil prices were flat over the past week, as the average on January 28, 2002, remained unchanged at 116.2 cents per gallon, but was 36.3 cents lower than the same period last year. The residential average propane price was unchanged at 113.4 cents per gallon last week, but was 52.9 cents per gallon below the same year ago price.