Released on April 10, 2002
(Next Release on April 17, 2002)

“Whassup”
As oil market traders, analysts, and others interested in following oil markets greet each other with the now popular refrain of “whassup,” many are interpreting that phrase as “what’s up,” noting that both prices and stock levels appear to be “up.” This has perplexed some analysts, as relatively comfortable stock levels usually correspond to lower prices, not higher prices. As a result, many have attributed high prices to “speculation,” “war premiums,” or more conventionally, to “risk premiums.” But, actually, the numbers do support higher prices than some might think, albeit not as high as the $26 per barrel price currently being quoted for West Texas Intermediate crude oil.

Although inventories remain much higher than last year’s relatively low levels, the gap between last year and this year is shrinking. As recently as 7 weeks ago (the week ending February 8), total U.S. commercial petroleum inventories (excluding those in the Strategic Petroleum Reserve) were more than 83 million barrels higher than year-ago levels. However, even with last week’s increase in inventories, the gap now is just 58 million barrels and likely to close even further when data is released next week, as stocks built rapidly last April. What has clearly contributed to crude oil price increases over the past several weeks is the fundamental fact that oil markets are indeed tightening. With crude oil imports mostly fluctuating between 8 and 9 million barrels per day in recent weeks as opposed to last year’s 9 to 10 million barrels per day, crude oil inventories are likely to fall (or at most stay relatively flat) over the next month or so, as refiners begin to run more crude oil through the refinery system. If refined product demand does not begin to increase, then the decline in crude oil inventories could be offset by an increase in product inventories with the result that total commercial inventories remain relatively flat. But even this will be a far cry from the nearly 40-million-barrel commercial petroleum inventory build seen last April and the 35-million- barrel build seen in May. If, however, refined product demand grows as expected, then we could see the gap close even faster. In our view, therefore, prices are high today, and may rise further, principally because petroleum markets are tightening, and that it is likely that within the next several weeks, total commercial petroleum inventories may actually drop below year-ago levels! In short, the market has bid up prices (especially for physical barrels) to acquire incremental supply in anticipation of potentially much tighter conditions.

Retail Gasoline Prices Face Second Highest Price Increase in History
The latest weekly gasoline price survey released by EIA on April 8 reflected an increase of 30.6 cents during the past 8 weeks, with prices ending at 141.3 cents per gallon. The only other consecutive period in which gasoline prices rose more was between March 19, 2001 and May 14, 2001 when they rose by 30.9 cents per gallon. The current national average price is the highest since October 1, 2001, but still 8.7 cents lower per gallon than last year's price at this time.

The largest increases in average retail prices for regular gasoline over the past 8 weeks have occurred in California (36.8 cents per gallon) and in the Midwest (33.8 cents per gallon). Chicago saw an increase of 47.6 cents per gallon during this period, while San Francisco rose 43.6 cents per gallon. Prices on the East Coast increased by a lesser margin, with an increase of 28.0 cents per gallon in the past 8 weeks. The increases appear to reflect a variety of factors, including rising crude oil prices and seasonal pressures. Monday's announcement that Iraq will stop exporting oil is anticipated to put upward pressure on crude oil prices if crude oil inventories shrink as a result. While EIA does not forecast a return to gasoline prices as high as those seen in the last two years, the peak prices during the seasonal increase will be determined by the strength of both crude oil and gasoline market balances seen in late spring. While the final outcome is difficult to predict, momentum is building and surprises are not unexpected.

Retail diesel fuel prices rose by 2.8 cents per gallon last week, to a national average of 132.3 cents per gallon as of April 8. The increase in diesel fuel prices over the past 8 weeks (17.0 cents per gallon) has been lower than that for gasoline, reflecting higher inventories and a different seasonal demand pattern.

Propane Inventories Begin Seasonal Build
Propane’s seasonal stockbuild began in earnest last week with a nearly 1.0-million-barrel gain, lifting U.S. inventories to an estimated 40.2 million barrels as of April 5, 2002. Regional inventories reported a strong 1.1-million-barrel stockbuild in the Gulf Coast last week while the East Coast continued slightly lower with a 0.2-million-barrel draw. Midwest inventories, following a record stock draw during March, remained relatively flat during this same period. U.S. inventories of propane continued to track about 16.2 million barrels above the same week last year.

Propane Data Release Shifts to Summer Schedule
Weekly propane data including inventories, production, and imports are collected only during the winter heating season (October-March). Beginning next week, EIA will cease publishing these data on a weekly basis during the summer period April through September. However, monthly propane inventory data will continue to be published in “This Week In Petroleum” beginning with the first monthly release on May 8, 2002.