Released on October 9, 2002
(Next Release on October 17, 2002)

Ready For Winter?
With the winter heating season just beginning, petroleum industry observers and consumers alike are beginning to shift their attention to the Nation’s stockpile of critical heating fuels, including distillate fuel (used as both heating oil and diesel fuel) and propane. Following last winter’s mild weather, inventories of both distillate fuel oil and propane stood at relatively high levels by the end of a winter that would require at best, only moderate restocking to reach adequate levels before the start of this heating season. Despite a below average stockbuild, propane inventories reached 71.2 million barrels by the end of September 2002, a level considered adequate for the start of the winter heating season. But distillate fuel inventories, after tracking at or above the upper limit of the average range for most of the year, unexpectedly foundered during the July through September period, and with the winter heating season just beginning, stand at 127.4 million barrels, a level barely above the lower limit of the average range, as of October 4.

With propane inventories at their highest level in four years, coupled with little prospect for any impending demand spike from either crop drying or other unexpected economic stimulus, the expectation for the 2002-2003 winter heating season is for adequate propane supplies. Moreover, through September, U.S. inventories of propane, at 71.2 million barrels, are about 4.1 million barrels above the prior year level, and about 11 million barrels above levels some analysts see as adequate for the kickoff of the winter season. But the status for distillate fuel oil, which initially was expected to start the heating season at near normal inventory levels, has since deteriorated because of a number of factors. Data for the week ending October 4, 2002, show distillate fuel inventories at roughly the same level as last year, a time when inventories were near the bottom of the average range through October 2001. However, over the course of a very mild winter, especially in November, December, and January, distillate inventories essentially moved to a level slightly above the upper limit of the average range by the end of March 2002.

What caused distillate fuel inventories to erode from above average levels since last summer? Part of the explanation was discussed in earlier issues of “This Week In Petroleum,” that mentioned low levels of refinery production and imports contributing to impede the late summer stockbuild, as refiners sought to maximize gasoline production, given record gasoline demand during this period. But other factors have since entered the fray including the impact from Tropical Storm Isidore and Hurricane Lili that shut down Gulf of Mexico crude oil production and temporarily closed the Louisiana Offshore Oil Port (LOOP). Annual crude oil production in the Gulf of Mexico (PAD District III) averaged about 1.5 million barrels per day during 2001, more than one-fourth of total U.S. crude oil production for that year. Crude oil deliveries to the LOOP were suspended for about six days during Tropical Storm Isidore, and about three days during Hurricane Lili.

But even more important were the temporary refinery outages that resulted from Hurricane Lili. Crude oil refinery inputs in the Gulf Coast (PADD III) for the week ending October 4 averaged 800,000 barrels per day less than the previous week, while crude oil refinery input in the Midwest (PADD II), which suffered from reduced supply from the Gulf Coast, averaged 300,000 barrels per day less last week. Total U.S. crude oil refinery inputs have dropped by 1.4 million barrels per day over the most recent two-week period. The result was less refinery production of all products, including distillate fuel. With distillate fuel demand over 4 million barrels per day last week for the first time since the week ending February 22, and refinery production down due to Hurricane Lili, inventories were drawn down to help supply the increased demand. While distillate fuel refinery production should increase as refineries restart their operations, it will be the level of demand that will likely dictate the path distillate fuel inventories will take as winter progresses. And demand growth will largely depend on how cold it becomes this winter. So are we ready for winter? For those heating with propane, the answer is yes. But for those heating with distillate fuel, it will depend on what kind of winter we experience this season, particularly in the Northeast, where most of distillate fuel used as heating oil is consumed.

Low September Stockbuild, But Propane Inventories Ready for Winter
Propane stockholders continued to replenish inventories at below average levels during September, although the nearly 1.5 million barrel monthly gain pushed U.S. inventories of propane to a four-year high of 71.2 million barrels as of September 30, 2002. The seasonal stockbuild, which lasts from the end of March through September, measured 31.9 million barrels, a level 4.8 million barrels below the 5-year average of 36.7 million barrels. However, U.S. inventories of propane began the 2002-03 heating season slightly above the average range for this time of year. Regional stockbuilds were mixed last month with East Coast inventories posting an above average 0.5 million barrel gain that contrasted with below average gains in the Midwest and Gulf Coast regions that totaled 0.8 million barrels and 0.2 million barrels, respectively. But regional inventories remain well positioned for the start of the heating season with above average inventories in the East Coast and Gulf Coast regions and with inventories in the Midwest well within the average range for this same period.

Next Propane Inventory Release
Propane inventory data will begin weekly issues during the period October 2002 through March 2003, with data for the week ending October 11, 2002, released on October 17, 2002 (one day later than normal due to the Columbus Day Federal holiday).

Retail Gasoline and Diesel Fuel Prices Highest Since September 2001
The U.S. average retail price for regular gasoline increased over the last week, rising by 2.6 cents per gallon as of October 7 to end at 143.9 cents per gallon, the highest price since September 24, 2001 and 8.7 cents per gallon higher than last year. The rise in retail prices can mostly be attributed to increases in the price of crude oil. Retail diesel fuel prices increased for the eighth week in a row, rising by 2.2 cents per gallon to a national average of 146.0 cents per gallon as of October 7, the highest price since September 24, 2001. U.S. diesel fuel prices have risen 15.7 cents per gallon since they started increasing eight weeks ago, and with distillate fuel stocks expected to remain on the low edge of the normal range throughout the winter, it is unlikely that prices will soften. Typically, diesel prices are higher in the fall and winter as demand increases due to heating and agricultural uses, putting pressure on the heating oil and diesel fuel markets. Retail diesel prices were up throughout most of the country, with the largest price increases occurring on the East Coast, which each saw prices rise by 2.8 cents per gallon to end at 144.8 cents per gallon. Prices on the West Coast fell by 0.2 cent per gallon to end at 153.4 cents per gallon.



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