Released on May 1, 2002
(Next Release on May 8, 2002)

Bulls vs. Bears
Following the breakneck 5.8 percent growth rate (measured as Gross Domestic Product or GDP) registered for the U.S. economy during the first quarter 2002, some economists are now suggesting more moderate growth in the range of 3 to 3.5 percent during the second quarter, and perhaps for the remainder of the year. How will these projections bode for U.S. petroleum markets in the months ahead? Taking either a bullish or bearish position with respect to the level of GDP growth may only determine the speed at which oil markets will tighten up. Even with this week’s increase in crude oil inventories, it does appear inevitable that, in the near future, crude oil inventories will fall. As a result, diminishing crude oil supplies may have the effect of causing added tightness in gasoline, and possibly jet fuel markets in the run-up to the summer travel season.

The unexpectedly large jump in economic activity during the first quarter of 2002, when combined with the modest 1.7 percent rebound in GDP during the fourth quarter of 2001, now strongly confirms the view held here that seemingly weak U.S. oil demand levels apparent over the winter now ended were not structurally rooted. Most, if not all, of the deficit seen in monthly comparisons with last year now can be attributed to short-term factors, all but dissipated - near record warm weather, dramatically lower natural gas prices, and September 11’s impact jet fuel demand. Should economic growth continue to run at 3 percent or higher (which seems plausible, even over the second quarter of 2002, since continued slowing in de-stocking in the business sector is anticipated), the masking effect of these factors will be evident all too soon in solid petroleum demand growth rates and inventory declines.

Indeed, largely unaffected by these special factors, demand for finished motor gasoline set a first quarter record, averaging 8.4 million barrels per day, 2.3 percent higher than first quarter 2001. Demand for jet fuel, although trailing more than 10 percent below the same first quarter period last year, continues to rebound from the effects of the September 11 terror attacks. For example, over the most recent four-week period, jet fuel demand is just 1.4 percent less than during the same period last year, while motor gasoline has shown a growth rate of 2.7 percent over this period. Again, if demand for these fuels remains strong, crude oil and petroleum product inventories would be expected to trend lower over the next few months. While an inventory cushion currently exists for motor gasoline, jet fuel inventories remain close to year-ago levels. For the week ending April 26, inventories of motor gasoline stood at 211.9 million barrels, more than 12 million barrels above year-ago levels. Inventories of jet fuel totaled 39.7 million barrels during this same period, 0.8 million barrels below the prior year level.

U.S. reported commercial crude oil inventories surprised analysts by increasing 4.6 million barrels last week. Although a small rise in crude oil imports explains some of the gain, the additional increase in reported inventories is in the nature of weekly data. Sometimes changes in reported inventories lag changes in imports, as the timing of imports is critical with weekly data. Nevertheless, despite this increase, commercial crude oil inventories remain less than 4 million barrels above the level at the same time last year. Moreover, crude oil imports over the last four weeks have averaged 8.9 million barrels per day, down about 9 percent from the same period last year. If product demand continues to remain relatively strong for gasoline in particular, the current inventory cushion will be needed to supply the market temporarily. However, once this cushion is reduced, refiners will need to increase production, putting added pressure on crude oil inventories.

Retail Gasoline Takes a Slide
The retail price for regular motor gasoline fell this week, losing 1.1 cents to end at 139.3 cents per gallon. This price is 23.3 cents per gallon lower than last year. Prices have been flat or falling for the past three weeks. Prices were down throughout the country, except for in the Rocky Mountains, which saw an increase of 0.8 cent per gallon. The largest price decrease occurred in the Midwest, where prices dropped 2.4 cents. Gasoline inventories rose last week, remaining 6.2 percent above last year’s level and 2.3 percent above the 5-year average. Total gasoline imports were up last week, at a level 23.3 percent higher than this time last year. However, continuing daily conflicts in the Middle East and OPEC's reluctance to raise its production quota have the potential to disrupt crude oil and product markets.

Retail diesel fuel prices fell for a third straight week by 0.2 cent per gallon, to a national average of 130.2 cents per gallon as of April 29.

Total Gasoline Imports Reach Record Levels
Total gasoline imports (including blending components) averaged nearly 1.1 million barrels per day for the week ending April 26, which is more than 100,000 barrels per day higher than the previous record set during the week ending September 28, 2001. Even with this record level of imports, gasoline inventories only increased by 1.3 million barrels. If imports had been just 200,000 barrels per day less (which still would have represented a high level), gasoline inventories would have been drawn down slightly.