Released on February 5, 2003
(Next Release on February 12, 2003)

5 for 5
With large inventory declines last week in distillate fuel and gasoline putting these products below the lower end of the normal range for the end of January, they join crude oil, residual fuel, and total commercial petroleum inventories, all of which were already below the lower end of the normal range. Distillate fuel inventories, in particular, showed the most dramatic decline, plummeting by 10.3 million barrels last week, the second largest weekly drop since EIA began keeping weekly statistics. (The week ending December 30, 1983 had a drop of 13.0 million barrels.) With distillate demand last week at its highest weekly average ever (4.9 million barrels per day), and with refinery inputs continuing to drop due to low levels of imports and crude oil inventories, there was no choice but to draw down distillate fuel inventories. The same situation exists across all major products, with gasoline and residual fuel oil also below the normal range for this time of year. Crude oil inventories have been below the normal range since September 2002. And total commercial petroleum inventories fell below the normal range for the week ending January 24, and at 918.6 million barrels, are at their lowest level since the week ending March 16, 2001.

With U.S. Secretary of State Colin Powell providing evidence today to the United Nations Security Council on how Iraq has not lived up to its obligations, many market participants may feel that war with Iraq is not far away. And with the prospect of Iraqi oil being off the global market for a while, having oil inventories this low across the board raises the probability for price spikes in the coming weeks. Without the flexibility that ample inventories provide, oil markets now are as tight as a fully stretched rubber band. Whether the rubber band breaks or not will largely depend on the pace of demand in coming weeks.

Arctic Blast Fuels Heating Demand
The nation’s gatekeeper of weather information, the National Oceanic and Atmospheric Administration’s National Weather Service, just recently reported what most people living on the East Coast and in some other regions of the nation already knew, that temperatures in these regions were much colder than normal during January 2003. While the extended blast of arctic weather was not strictly limited to these regions, as frigid temperatures were reported as far south as Miami, Florida, the effects of severe cold weather are typically more acutely felt in these intense heating fuel consuming regions. For instance, January’s cold temperatures helped rocket distillate fuel demand to 4.9 million barrels per day as of the week ending January 31, the highest weekly average ever. However, by the end of the month, distillate fuel demand had settled to average 4.3 million barrels per day, based on the four-week period ending January 31, 2003, not a record but, nevertheless, a level that remains exceptionally high for this time of year based on EIA models. Some have argued that fuel switching (natural gas to oil) may explain some of the unusual strength seen in distillate fuel consumption, especially during the coldest periods of the month.

Moving south and west, wintry temperatures during the month were also felt in the South Atlantic and East South Central regions with colder-than-normal temperatures of 7 percent and 8 percent, respectively. While the Midwest region (PAD District II) accounts for the highest concentration of consumers that use propane for heating in the nation, the South Atlantic and East South Central regions, as well, comprise areas that are largely dependent on propane for heating. But to fully gauge the effects of cold weather in these areas, inventory declines in both the Gulf Coast and Midwest regions should be analyzed. With relatively few propane-heating consumers in the Gulf Coast region, a large amount of the region’s propane supply is shipped, via pipeline, to other heating fuel market locations including the Midwest and East Coast regions. Accordingly, regional inventories in the Gulf Coast and Midwest regions reported a combined 15.3 million-barrel draw during January, a level that was 40 percent above the stockdraw averaged over the past 5 years. Even areas that reported normal temperatures during January, such as the East North Central region, would be expected to show sharp increases in heating demand compared with the past several winters in which temperatures were well above normal during those periods. But what lies ahead for heating fuel consumers for the remainder of the winter will largely depend on how frigid temperatures are during February and whether Punxsutawney Phil, the famous ground hog, seeing his shadow on February 2, will truly forecast another 6 weeks of winter.

Average U.S. Retail Gasoline Price Rises Above $1.50
The U.S. average retail price for regular gasoline rose for the eighth week in a row last week, increasing by 5.4 cents per gallon as of February 3 to end at 152.7 cents per gallon, the highest price since September 17, 2001. Increasing by a total of 16.7 cents per gallon over the last eight weeks, the average retail price is 41.1 cents per gallon higher than last year. Prices throughout the country were up, with the largest increase occurring in the Midwest, where prices rose 6.5 cents to end at 152.4 cents per gallon. The smallest price increase occurred on the West Coast, where prices rose 4.0 cents.

Residential Heating Fuel Prices Continue to Rise
Residential heating fuel prices increased for the period ending February 3, 2003. The average residential heating oil price was 153.5 cents per gallon, up 3.8 cents per gallon from the previous week. Residential heating fuel prices have risen 27.9 cents per gallon since October 2002 and are 37.2 cents per gallon higher than last year at this time. Wholesale heating oil prices increased 4.1 cents per gallon this week, to 102.1 cents per gallon.

Propane Sets Record Stock Draw in January
The draw on U.S. inventories of propane posted a record 18.3 million barrels during January 2003, a level that surpassed the previous monthly record of 17.6 million barrels set during January 1994. Contributing to the all-time record stockdraw was last week’s nearly 6.7 million-barrel decline that put U.S. inventories of propane at an estimated 32.3 million barrels as of the week ending January 31, 2003. January’s extended cold spell sent U.S. inventories of propane plunging to a level at the lower limit of the average range as of last week.

Regional stockdraws were strong in all the major propane consuming areas last week with inventories lower by 0.5 million barrels in the East Coast, followed by respective declines of 2.2 million barrels and 3.7 million barrels in the Midwest and Gulf Coast regions. While Midwest inventories continued to track within the respective average range last week, inventories in the East Coast moved down to a level below the average range, and the Gulf Coast inventories moved to the lower limit of the average range.