Released on April 17, 2002
(Next Release on April 24, 2002)

As the World Turns
Beginning with Iraq’s announcement on April 8 that it would suspend oil exports under the U.N. “oil-for-food” program for at least 30 days or until Israel withdrew from the West Bank, it was a lively week for oil markets. A national strike in Venezuela, the fourth largest crude oil import source to the United States, led to the resignation of its President by the end of the work week, only to have him return by the end of the weekend. With world events unfolding rapidly before our eyes, so are oil markets. Whereas U.S. total commercial petroleum inventories (excluding those in the Strategic Petroleum Reserve) for the week ending April 5 were 58 million barrels more than year-ago levels, just one week later, they are now just 43 million barrels higher than year-ago levels. This gap should continue to close throughout the rest of this month and into May, when we will likely see a deficit to year-ago levels for the first time since the week ending December 29, 2000! This should occur since while markets are currently tightening, last year the reverse was true, with a 40 million barrel build in April and a 35 million barrel build in May. What’s different?

First, crude oil imports are down considerably this year compared to last year. Over the last four weeks, crude oil imports are down 1.1 million barrels per day from the same period last year. While delays in oil exports from Venezuela early this month almost certainly impacted the import data last week to some degree, most of the reason for the crude oil import deficit rests with OPEC’s decision to cut their quotas by another 1.5 million barrels per day (effective on January 1), which has clearly reduced imports into the United States. Assuming a 40-45 day lag for oil to be shipped from the Persian Gulf to the United States, EIA was expecting a decline in crude oil imports beginning in mid-February. Over the last nine weeks, beginning with the week ending February 15, crude oil imports into the United States have done just that, averaging 8.3 million barrels per day, down about 0.4 million barrels per day from the preceding nine-week period. While this doesn’t sound like too large a decline, it varies greatly from what has occurred in recent years. A similar comparison last year would have seen an increase of 0.4 million barrels per day, while in 2000, we would have seen an increase of 0.5 million barrels per day. So, at a time when imports are usually increasing to supply increased refinery production as the gasoline season begins, this year, crude oil imports are declining. And while crude oil inventories started this period in much better position than in the previous two years, at this rate, it won’t be long until crude oil inventories become tight once again, thus putting more pressure on crude oil prices.

Second, petroleum demand seems to be increasing. While the United States is still experiencing deficits to year-ago demand levels, largely due to last year’s special circumstances, this gap is also closing. Over the most recent four-week period, demand is now just 1.3 percent below year-ago levels, and generally increasing as the economy continues to rebound from the downturn experienced last year. EIA is expecting total demand to continue to increase compared to year-ago levels throughout the remainder of the year. If this indeed happens, this will also represent a difference to the pattern seen in 2001, and result in added price pressure.

Jet Fuel Demand Nears Year-Ago Levels
An example of the improving situation in petroleum demand is jet fuel. Jet fuel demand continues to rebound from year-ago levels, averaging 1.6 million barrels per day over the last four-week period or less than 4 percent below the comparable period last year. The last time jet fuel demand was this close to a prior-year level was week ending August 17, 2001, when demand was less than 2 percent below the prior year period. But if jet fuel demand continues to close the gap from the effects of the September 11 terrorists’ attacks, it may pose as a barometer for future growth in petroleum product demand as the U.S. economy continues to rebound from its recent downturn.

Are Gasoline Prices Declining?
After eight consecutive weeks of increasing (or flat) prices, the price for regular gasoline fell by 0.9 cent per gallon to a national average of $1.404 per gallon on April 15. However, this was solely due to a rather large 4.4 cents per gallon decrease in the Midwest. Every other region of the country saw prices continue to increase, albeit by relatively small amounts (with the West Coast only seeing an increase of 0.1 cent per gallon). The decline nationally, in some part, reflected an improving inventory situation towards the end of last month and early this month. However, with gasoline inventories declining last week and the large amount of uncertainty that currently exists in global crude oil markets, it is an open question as to the very short-term direction of gasoline prices. A brief respite from upward movements would seem plausible, but if the anticipated crude oil and product inventory pattern develops, further increases should be expected as the peak gasoline season nears. For further information, see the Summer Motor Gasoline Outlook, released on April 8, which predicts that gasoline prices are likely to rise further, although they are expected at this time to remain below levels seen the last two years. However, with the season just beginning it is difficult to know how events will unfold this summer. Last year, after rising in the spring and then falling in the middle of summer, gasoline prices rose again towards the end of summer. Suffice it to say that the consumers who experienced declining gasoline prices in recent days should not let out too large a sigh of relief yet.