Released on February 27, 2002
(Next Release on March 6, 2002)

U.S. Oil Markets Appear to be Tightening
Tracking U.S. oil markets is not as easy as it may appear. Many factors influence the direction and magnitude of changes in these markets; often factors that are distant and take several weeks or even months to make themselves known. One of these is the level of U.S. crude oil imports. For several weeks now, we have speculated that crude oil imports into the country could fall, since Iraqi exports have been noticeably reduced since December, and OPEC agreed to reduce production, beginning on January 1. Because of the time lags associated with changing policies, and transit times for oil to arrive in the United States, we had speculated that we could see a significant reduction in crude oil imports sometime in late February or early March. Crude oil imports, which averaged above 9 million barrels per day from July 2001 through November 2001, before falling slightly to about 8.6 to 8.7 million barrels per day in December and January, have now averaged less than 8.1 million barrels per day in the last two weeks. Although crude oil inputs to refineries increased last week, with fewer imports entering the country, either inputs will need to fall (putting an increased emphasis on product stocks to keep pace with demand) and/or crude oil stocks will be drawn down to supply refineries. Either way, total commercial petroleum inventories are likely to fall in upcoming weeks. How much they fall, in part, depends on how long U.S. crude oil imports will remain at current relatively low levels. While inventories are presently well within the normal range for this time of year across all major commodities, we do expect to see some inventory erosion compared to normal levels over the next several weeks.

U.S. Commercial Petroleum Inventories Continue to Fall
Total petroleum commercial inventories (excluding those in the Strategic Petroleum Reserve) are now at their lowest level since the week ending August 31. Although they remain over 70 million barrels higher than last year at this time, this differential has been falling recently, as total commercial inventories have fallen 13.7 million barrels in the past four weeks. Last week, crude oil, gasoline, and distillate fuel inventories all fell, the second week in a row this has occurred. Prior to the last two weeks, all of these commodities had not seen inventories fall in the same week since the week ending August 31. So, while inventories remain well within the normal range for this time of year (see the chart at the bottom left of this page), they do appear to be falling relative to the normal patterns. Propane inventories also reflect this pattern, falling 1.6 million barrels last week against inventories that remain well above prior year levels for this time of year. U.S. propane inventories ended the week at an estimated 45.9 million barrels. Although mild weather was responsible for most of the high propane inventories this winter, February stock draws have averaged well above average as late winter weather finally began to whittle away at the high inventories. Nevertheless, barring a surge in drawdowns through March, propane inventories are likely to end the season at their highest level in years.

U.S. Gasoline Demand Continues to Show Growth
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. This pattern continued last week, as gasoline demand (defined as how much product was supplied into the market) over the last four weeks averaged 2.5 percent growth over last year’s average during the same period. However, the other three main petroleum products (distillate fuel, residual fuel, and jet fuel) continue to show large declines in comparison to year-ago levels. The declines in distillate fuel and residual fuel demand are relatively easy to explain as high natural gas prices and colder weather compared to this year’s winter increased demand for these two fuels last year. Jet fuel demand is obviously down due to reduced air traffic following the attacks on September 11. While the recovery in jet fuel demand may be many months off, comparisons to last year’s demand levels for distillate fuel and residual fuel should improve in April, May, and June as the impacts from weather and high natural gas prices last year should be significantly muted in coming months.

Gasoline Refinery Production Remains Relatively Low
Refinery production of gasoline averaged less than 8.0 million barrels last week, the third week out of the last four that this has occurred. While this may not be highly unusual for this time of year, particularly with gasoline inventories well within the normal range, this could be of some concern if inventories begin to fall closer to the bottom of the normal range. Meanwhile, low-sulfur distillate fuel (often referred to as diesel fuel) production increased to above 2.5 million barrels per day last week. What is noteworthy about this is that the eight highest weeks of diesel fuel inventories have all occurred in the last eight weeks! With historically high inventories and an economy that appears to be struggling to emerge from a recession, it is curious that refiners would be increasing production of diesel fuel at this time. It will be interesting to see if diesel fuel production remains above 2.5 million barrels per day in subsequent weeks.

Petroleum Product Prices Remain Relatively Flat
The national average retail regular gasoline price was 111.6 cents per gallon on February 25, 2002, unchanged from last week but 31.5 cents per gallon lower than a year ago. The national average retail diesel fuel price decreased to 115.4 cents per gallon, 0.2 cent lower than last week and 29.7 cents per gallon less than a year ago. Heating fuels prices remained relatively static for the week ending February 25, 2002, as warmer temperatures continued to dampen the heating season. The average residential heating oil price stood at 115.9 cents per gallon, a 0.1 cent decrease from last week’s posting and 30.3 cents below the February 26, 2001 mark. Residential propane prices showed a similar decline, moving from 112.8 to 112.6 cents per gallon, down 0.2 cent from last week and 38.1 cents from a year ago.