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Released on October 30, 2002
(Next Release on November 6, 2002)
Trick or Treat?
As Halloween approaches, crude oil prices, including those for West Texas Intermediate (WTI) have been in a decline over the last several days. The spot price of WTI, which had been around $29 to $30 per barrel for most of the time since mid-August, is now about $27 per barrel. Will prices continue falling over the next several weeks and provide a treat for consumers in the form of lower prices for petroleum products such as gasoline, diesel fuel, and heating oil, or is the latest decline a mean trick on consumers, representing just a temporary fall before rising again later in the year? While no one can guarantee the future path of oil prices, we can look at the various factors that may weigh in on the future direction of oil prices over the next few weeks.
Looking first at factors that support the notion that the WTI spot price may continue falling or, at the very least, not rise to $30 per barrel again are reports of increased oil production globally, particularly from OPEC. Groups like PetroLogistics Ltd., which estimate OPEC production based on tanker traffic movements, are estimating that OPEC oil production continued increasing in October. If this is indeed the case, that would increase the likelihood of higher U.S. oil imports in November and December. Additionally, refinery production continues to increase as many refineries have returned to normal operations following closures related to Tropical Storm Isidore and Hurricane Lili, as well as start-ups following maintenance programs which usually take place in the early autumn. So with additional crude oil supply and additional petroleum product supply from refineries, an argument could be made that oil prices have peaked and should either stabilize or continue falling over the next several weeks.
On the other hand, inventories of crude oil, gasoline, and distillate fuel all remain near or below the lower limit of the normal range for this time of year. The inventory situation is particularly acute for crude oil inventories in PADD II (Midwest), the region where Cushing, Oklahoma, the delivery point for WTI traded on the New York Mercantile Exchange, is located. In PADD II, crude oil inventories are near their lowest level since at least late-1989, when EIA began tracking weekly crude oil inventories on a regional basis. With inventories this low, the market is susceptible to any situation in which an immediate increase in crude oil supply would be necessary, as drawing upon inventories remains the most timely method for increasing supplies. One situation that might cause this is a prolonged cold streak here in the United States, which would increase demand for oil products such as distillate fuel and residual fuel, causing an increase in crude oil input for refineries. Thus, demand, too, is a factor that will impact the near-term path of oil prices, both for crude oil and petroleum products.
Finally, the last category of factors that will weigh on oil prices in the coming weeks are what can be loosely termed “non-fundamental” factors. These relate to views about the possibility and timing of any war with Iraq, as well as any other non-fundamental factors. Of course, there is no way to know what impact these factors would have on prices, as by definition, they could move in either direction. Wherever you stand on the issue of whether oil prices this autumn will be a trick or a treat for consumers, it is fairly clear that the next several weeks will be pivotal in determining where oil prices will head this winter.
Retail Gasoline and Diesel Fuel Prices Fall Back Last Week
The U.S. average retail price for regular gasoline fell over the last week, decreasing by 1.4 cents per gallon as of October 28 to end at 144.4 cents per gallon. This price is still 20.9 cents per gallon higher than last year. This price decrease comes after four weeks of increasing prices during a season of normally decreasing gasoline prices.
Retail diesel fuel prices fell last week after ten weeks of rising prices, decreasing by 1.3 cents per gallon to a national average of 145.6 cents per gallon as of October 28. With U.S. distillate fuel inventories below the lower end of the normal range, it is unlikely that prices will soften significantly as the season unfolds. Retail diesel prices were down throughout the country, with the largest price decrease occurring on the Gulf Coast, which saw the price fall by 2.2 cents per gallon to end at 141.7 cents per gallon. There was a price increase seen in New England, where prices gained 0.8 cent to end at 149.6 cents per gallon.
Retail Heating Fuels Prices Show Slight Upward Movement
Residential heating oil and propane prices showed slight increases for the period ending October 28, 2002. The average residential heating oil price was at 127.3 cents per gallon, up 0.2 cent per gallon, while the average residential propane price increased 0.7 cent per gallon from 113.5 to 114.2 cents per gallon. Heating oil prices are 4.6 cents per gallon higher than last year at this time while residential propane prices are 0.5 cent per gallon higher than one year ago. Wholesale heating oil prices decreased 5.1 cents per gallon, to 82.0 cents per gallon. Wholesale propane prices rose slightly from 54.0 to 54.4 cents a gallon, up 0.4 cent per gallon.
Propane Inventories Continue Unseasonable Slide
U.S. inventories of propane continued their recent slide with a weekly stock draw measuring nearly 1.4 million barrels, and ended the week of October 25, 2002 at an estimated 66.5 million barrels. Since October 1, 2002, U.S. inventories of propane have fallen by 4.7 million barrels. Unseasonable cold weather is partly due to the sharp slide in inventories as propane marketers begin to move supplies closer to the areas of final consumption. Although U.S. inventories are falling faster than would typically be expected at this time of year, inventories continue to track within the middle of the average range. Regional stock draws were evenly distributed between the Midwest and Gulf Coast regions last week with similar declines of roughly 0.6 million barrels, while East Coast inventories posted a more modest 0.1 million barrel draw during this same period. Comparisons with respect to average ranges show East Coast and Gulf Coast inventories near the upper limit of the range while inventories in the Midwest continue to track at the lower limit of the average range for this period.
Note: Texts from previous editions of “This Week In Petroleum” are now accessible through a link at the top right-hand corner of this page.
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