Released on January 8, 2003
(Next Release on January 15, 2003)

A Surprising Week?
Just as the National Football League (NFL) playoffs this past weekend had some surprising outcomes, so, too, have the U.S. weekly petroleum data for the week ending January 3, which were released earlier today, surprised many analysts. However, unlike the NFL playoffs, where one week (or even one bad call by a referee) can eliminate a team, one week’s worth of data should never take one’s attention away from ongoing trends. While clearly most analysts were not expecting even a slight increase in U.S. commercial crude oil inventories or sizeable builds in gasoline and distillate fuel inventories, it is still likely that established trends will continue in coming weeks.

Perhaps the most surprising item in the latest weekly petroleum data is that despite the fact that imports from Venezuela were substantially less than typical due to the strikes there, U.S. commercial crude oil inventories actually rose 0.4 million barrels. A Bloomberg survey of seven analysts yesterday forecasted an average drop of about 4 - 5 million barrels, so an increase, even one as small as 0.4 million barrels, was unexpected. And in PADD III (Gulf Coast), where most of the Venezuelan imports usually flow into, commercial crude oil inventories increased by 1.7 million barrels last week! However, this points out why it is important to look at the latest trends in the data and not focus on just one week’s worth of data. The graph shown here depicts the level of crude oil imports into the Gulf Coast on the left axis and the commercial crude oil inventory levels in the Gulf Coast on the right axis over the last 10 weeks. Even with last week’s upward movements, a downward trend since the week ending December 6 is clearly apparent. Averaging Gulf Coast imports over the last couple of weeks, or fitting a trend line between the Gulf Coast stock levels from December 6 to the last data point, it is apparent that imports, and consequently inventories, remain on a downward trend. Without Venezuela’s typical exports of 1.2 to 1.3 million barrels per day of crude oil to the United States, it is likely that these downward trends will continue in coming weeks, barring, of course, sufficient offsetting volumes from other sources.

Most oil analysts were also surprised with the size of the inventory builds in gasoline and distillate fuel in the data released earlier today. But again, there are reasons why these data are not as surprising as they may appear at first glance. Refinery margins have improved recently to a degree that would encourage refinery production. Despite the fact that U.S. crude oil refinery inputs typically decline significantly in January, there was only a slight decrease in refinery inputs for the week ending January 3. Adding to this is the amount (or yield) of gasoline and distillate fuel refinery production that has resulted from these refinery inputs. U.S. refinery output of both of these fuels has remained relatively high for several weeks now, and combined with significant amounts of gasoline and distillate fuel imports, supplies of both of these fuels continue to remain relatively high. Thus, particularly with gasoline, which typically sees inventories increase by about 7 million barrels during January, a significant inventory build was not too surprising, especially given the level of demand that usually occurs in January. Gasoline demand in January has averaged more than 300,000 barrels per day less than in any other month over the last five years. So when demand is low, but supplies remain high, an inventory build should not be unexpected. Perhaps more surprising was the build in distillate fuel, but again, refinery economics clearly played a role in the inventory build seen last week. Distillate fuel refinery production has averaged about 3.9 million barrels per day consistently over the last four weeks, and with imports averaging 500,000 barrels per day over the last four weeks as well, it is not a surprise to see distillate fuel inventories build, even in the heart of winter. But if crude oil prices continue to remain relatively high, and, either refiners cut back their refinery production because of a lack of crude oil availability and/or there are declining refinery margins due to the excess supplies produced recently, the refinery economics could shift and refinery production of gasoline and distillate fuel could drop. Should this occur as demand begins to increase, or refinery maintenance bites further into production, a subsequent drop in gasoline and distillate fuel inventories would likely result. As the coming weeks unfold, the NFL playoffs will continue to eliminate teams week by week until only one is standing. But when looking at weekly petroleum data, it is usually best to look at overall trends, rather than focusing on any one week.

Retail Gasoline and Diesel Fuel Prices Increased Again Last Week
The U.S. average retail price for regular gasoline rose for the fourth week in a row last week, increasing by 0.3 cent per gallon as of January 6 to end at 144.4 cents per gallon. This price is 33.2 cents per gallon higher than last year, and for this time of year, is the highest since EIA started collecting weekly retail price data. Prices throughout most of the country were up, with the largest increase occurring on the West Coast, where prices rose 3.0 cents to end at 150.0 cents per gallon. The Midwest was the only region that saw a price decrease, with prices falling by 3.1 cents to end at 141.9 cents per gallon.

Retail diesel fuel prices increased last week, rising to a national average of 150.1 cents per gallon as of January 6. Retail diesel prices were up throughout the country, with the largest price increase occurring on the Gulf Coast, where prices rose by 2.5 cents per gallon to end at 147.3 cents per gallon. If supply pressure from the crude oil market continues in the coming months, it is likely that prices for both gasoline and distillate fuels will continue to rise.

Heating Oil Prices Rise Over 14 Cents in One Month
Residential heating fuel prices continued their increase for the period ending January 6, 2003. The average residential heating oil price was 142.8 cents per gallon, up 2.0 cents per gallon from the previous week. Since the beginning of December 2002 heating oil prices have increased 14.4 cents per gallon, from 128.4 cents to 142.8 cents per gallon. Heating oil prices are 26.0 cents per gallon higher than last year at this time. Wholesale prices, on the other hand, decreased by 0.2 cent per gallon this week, falling from 95 to 94.8 cents per gallon.

Propane Inventories Push Lower by 1.6 Million Barrels
U.S. inventories of propane fell by nearly 1.6 million barrels last week to end the week of January 3, 2003 at an estimated 50.7 million barrels. Although the end of December marks the mid-point of the winter heating season, the second half historically accounts for the largest draw on inventories, particularly during the cold months of January and February. With colder than normal temperatures in October and November, and near normal temperatures in December, propane inventories declined by more than 20 million barrels, a level that was about 55 percent greater than the 5-year average, although U.S. inventories still remain well within the average range for this time of year. Looking ahead, if U.S. inventories of propane follow the previous 5-year trend with a 21 million barrel draw during the second half of the heating season, inventories would fall to about 29 million barrels by the end of March 2003, a level that would continue well within the average range for this time of year.

Regional inventories were lower in the East Coast and Gulf Coast regions last week with respective declines of 0.2 million barrels and 1.8 million barrels, while the Midwest region reported a 0.5 million-barrel stock build during this same time, the first such build since the end of September. Regional inventories continued within the average range for all major areas last week.