Released on February 21, 2002
(Next Release on February 27, 2002)

What? Inventories Falling?
Last week, for the first time since the week ending August 31, crude oil, distillate fuel, and motor gasoline inventories all fell in unison. In the previous 23 weeks, at least one of these fuels had shown an increase in inventories from the week before. But for the week ending February 15, 2002, crude oil inventories fell by 3.1 million barrels, distillate fuel inventories fell by 1.8 million barrels, and gasoline inventories fell by 0.5 million barrels. While declines in distillate fuel and gasoline stocks are not unexpected for this time of year, the decline in crude oil is somewhat unusual. Reviewing the weekly data over the previous 5 years (1997-2001), distillate fuel inventories have dropped by an average of 0.5 million barrels at this time of year, while gasoline inventories have fallen by an average of 1.5 million barrels. Crude oil inventories (excluding the large drop last year due to fog preventing imports from reaching Gulf Coast ports during portions of that week) typically rise by 1.0 million barrels at this time of year. That said, however, we still find ourselves well within the normal range for all three commodities (see the chart at the bottom left of this page), as has been the case for many weeks now. This same trend also appears with propane inventories. The draw on U.S. inventories of propane continued strongly last week with a 2.3-million-barrel drop. However, with U.S. inventories of propane well above the normal range for this time of year (47.6 million barrels as of mid-February), even if we see average stock draws occur for the remainder of the heating season, inventories will end March 2002 at their highest level since 1987.

Of course, as we have often stated, one week’s data does not make a trend. It is too early to determine whether we have begun a trend of declining inventories. With product inventories at adequate levels, and OPEC crude oil production cuts, along with lower Iraqi crude oil exports, reducing the global supply of oil, there does appear to be a reason why inventories may show either a decline or a smaller build than usual over the next several weeks. So, are last week’s falling inventories the first of more to come or an unusual happenstance? Stay tuned. Time will tell.

Crude Oil Imports Last Week Were The Lowest In a Year
Crude oil imports last week averaged just 8.0 million barrels per day, the lowest amount seen since the week ending February 16, 2001, when dense fog in the Gulf Coast kept many tankers from offloading their cargo during portions of that week. After averaging 8.6 million barrels per day for the seven-week period beginning the week ending December 21 through the week ending February 1, the last two weeks have shown more volatility, averaging 9.3 million barrels per day in the week ending February 8, but just 8.0 million barrels per day last week (the week ending February 15). Of course, averaging the last two weeks together, crude oil imports look right in line with recent history. However, with cuts in crude oil production by OPEC countries and a few major non-OPEC countries implemented on January 1, and considering the typical transit times for this oil to arrive in the United States, it may be that we are just beginning to see a declining trend in crude oil imports. Again, with one week’s data, definitive conclusions should not be made. But it will be interesting to see if crude oil imports remain closer to 8 million barrels per day than 9 million barrels per day over the next several weeks.

U.S. Petroleum Demand Once Again Showing Some Strength
For many weeks now, gasoline demand has been the lone major product showing consistent strength over year-ago levels, as demand for residual fuel, distillate fuel, and jet fuel have been affected by some combination of much lower natural gas prices, warmer weather, and the effects of the September 11 attacks on the airline industry. However, there are some signs that jet fuel demand may be improving. Over the last four weeks, jet fuel demand has averaged just 8.4 percent less than the same period a year ago. This is the closest it has been to year-ago levels since the 4-week period ending November 2. What’s more, since the 4-week comparison showed the largest gap compared to year-ago levels (17 percent below) for the 4-week period ending December 7, there has been a general declining trend in the gap in subsequent weeks. While lower natural gas prices and warm weather go a long way in explaining January's extraordinary weakness in residual fuel and distillate fuel consumption, these factors may have less impact in subsequent months, resulting in marked improvement in U.S. petroleum demand comparisons with year-ago levels.

Gasoline Refinery Production is the Lowest Since March 23, 2001
Refinery production of gasoline averaged less than 7.9 million barrels last week, the lowest amount in nearly 11 months. With product inventories remaining well within the normal range, there is currently little need to produce a lot of products at the refineries, instead using inventories to supply demand. However, with gasoline inventories not in as good shape as some of the other products (distillate fuel and propane, for example), if gasoline production remained at these low levels for the next several weeks leading up to the beginning of the gasoline season in April, the gasoline situation could be less comfortable than it currently appears. Meanwhile, crude oil inputs to refineries over the last 4 weeks (14.2 million barrels per day) are averaging slightly less than the average for the last 4 years (1998-2001) for January and February, making this a key data point to watch in upcoming weeks.

Most Petroleum Product Prices Rose Slightly Last Week
The national average retail regular gasoline price increased to 111.6 cents per gallon on February 18, 2002, up 0.9 cent per gallon from last week but 33.3 cents per gallon lower than a year ago. The national average retail diesel fuel price increased for the second straight week, totaling 115.6 cents per gallon on February 18, 2002, a rise of 0.3 cent from last week but 32.4 cents per gallon less than a year ago. Milder weather, especially along the East Coast, has contributed to the stability in residential prices for the past few weeks. As of February 18, 2002, the average residential heating oil price stood unchanged from a week earlier at 116.0 cents per gallon, a 31.7-cent decrease from last year’s price of 147.7 cents per gallon. Residential propane prices showed little movement as well, as the average fell from 113.0 to 112.8 cents per gallon, a 0.2-cent drop from last week and 41.0 cents below last year’s posting for the same period.