Released on February 20, 2003
(Next Release on February 26, 2003)

A Delicate Balance
With inventories in petroleum markets low almost across the board, whether in various refined products or in crude oil, a delicate balance between crude oil supplies and refinery production will be required in order to maintain supply at demand levels seen in recent weeks. Without a sustained infusion of crude oil into the United States oil market, matching supplies to demand at 20 million barrels per day will require the balance of a tightrope walker.

Never was this more evident than in the data for the week ending February 14. With crude oil imports averaging nearly 8.8 million barrels per day, the highest weekly average since the week ending December 20, crude oil inventories increased by 3.1 million barrels. However, this increase was at the expense of increasing refinery production even more than it otherwise increased, thus causing product inventories to be drawn down in order to supply enough to meet demand. Although crude oil inputs to refineries did increase to 14.3 million barrels per day last week, this still wasn’t high enough to produce enough product to keep these inventories from falling, especially while refined product demand is over 20 million barrels per day. Either more refined product needs to come out of refineries, both domestic and foreign, or demand needs to fall closer to 19 million barrels per day, so that product inventories don’t drop further below average levels. But increased production would come at the expense of crude oil inventories, unless an influx of crude oil was dumped into the system.

So, the conundrum is how to increase both crude oil and product inventories. It appears that the most likely answers will be either increased crude oil supply, increased product imports (above the already high levels seen recently), and/or a large reduction in demand. All of these are plausible scenarios since crude oil imports from the Middle East are expected to increase in coming weeks as a result of increased production from the region, distillate fuel imports could increase due to reports of Russian heating oil heading this way, and product demand typically declines some by late March as weather warms up. But even assuming any combination of these factors, it appears that it will take a long time for inventories of both crude oil and the major refined products to increase back to more normal levels. Just as it took over nine months for oil markets to work off surplus inventories, it may take months, not weeks, to rebuild an inventory cushion. The trick over the next several weeks will be how to balance oil markets so that supplies are managed to meet demand without any major problems. With markets balanced so delicately, there is no room for sustained domestic infrastructure problems or reduced supplies from other countries.

Midwest Crude Oil Stocks Reach Historic Low
Crude oil inventories in PADD II (Midwest) fell to just 50.3 million barrels, the lowest level since EIA has kept PADD-specific inventory levels (dating back to August 1989). This is important because PADD II includes Cushing, Oklahoma, where physical barrels are traded for West Texas Intermediate (WTI) crude oil, the U.S. benchmark crude oil. If inventories get particularly tight at Cushing then upward pressure on prompt WTI prices could develop, which may lead to higher prompt prices for other crude oils in the United States and elsewhere in the Americas.

Average U.S. Retail Gasoline Price Continues to Rise
The U.S. average retail price for regular gasoline rose for the tenth week in a row last week, increasing by 5.3 cents per gallon as of February 17 to end at 166.0 cents per gallon, the highest price since June 4, 2001. Increasing by a total of 30.0 cents per gallon over the last ten weeks, the average retail price is 54.4 cents per gallon higher than a year ago. Prices throughout the country were up, with the largest increase occurring on the West Coast, where prices rose 10.7 cents to end at 178.6 cents per gallon. Prices were the highest on the West Coast, and California saw retail regular prices increase by 11.0 cents last week to end at 186.2 cents per gallon.

Retail diesel fuel prices increased for the fifth straight week, rising 4.2 cents to a national average of 170.4 cents per gallon as of February 17. This was the highest diesel price since EIA began recording this data. Retail diesel prices were up throughout the country, with the largest price increase occurring on the West Coast, where prices rose 8.9 cents per gallon to end at 174.2 cents per gallon, which is 50.8 cents higher than this time last year. The highest prices were seen in New England, where prices jumped 5.1 cents to end at 188.5 cents per gallon.

Residential Heating Fuel Prices Take Slight Jump
Residential heating oil prices increased slightly during the period ending February 17, 2003. The average residential heating oil price was 173.1 cents per gallon, up 1.5 cents per gallon from the previous week. Residential heating oil prices are 57.1 cents per gallon higher than last year at this time. Wholesale heating oil prices had a decrease of 6.0 cents per gallon this week, dropping to 116.1 cents per gallon. If sustained, the decline in wholesale prices could portend a decline in retail prices in coming weeks.

Residential propane prices increased 1.3 cents per gallon from 148.3 cents to 149.6 cents per gallon, and are 36.8 cents higher than a year ago. Wholesale propane prices decreased 8.8 cents per gallon, from 85.1 cents to 76.3 cents per gallon. Like heating oil prices, if sustained, the decline in wholesale propane prices could foreshadow declining retail propane prices in coming weeks.

Propane Inventories Down Sharply Ahead of Big East Snow Storm
U.S. inventories of propane fell by more than 3.5 million barrels last week, just ahead of the devastating snowstorm that nearly paralyzed major portions of the Middle Atlantic and Northeast states. As of the week ending February 14, 2003, U.S. propane inventories stood at an estimated 25.9 million barrels, a level that continued to track slightly below the normal range for the second week in a row. The February draw through mid-month, at 6.4 million barrels, is more than 20 percent above the monthly draw averaged over the past 5 years and may even surpass the record 10.1 million-barrel draw set during February 1995. Regional declines in inventories followed recent patterns with the Gulf Coast bearing the brunt of the weekly stock draw, falling by 2.4 million barrels, followed by the Midwest region which reported a nearly 0.7 million barrel draw last week. During this same period, East Coast inventories fell a relatively modest 0.3 million barrels, although once the full effects of last week’s snowstorm are felt, it could be expected the region would face steep declines as consumers rush to replenish their tanks before the end of winter

EIA To Change Release Time for Weekly Petroleum Supply Data
EIA issued a Federal Register notice on February 12, 2003, announcing its policy for the release time of the Weekly Petroleum Status Report (WPSR). Under this policy, the WPSR will be publicly released electronically at 10:30 am EST each Wednesday. For weeks that include holidays, release of the WPSR will typically be delayed by one day. The effective date of this new policy will be February 26, 2003

To access the Federal Register notice, please go to:
http://www.eia.doe.gov/oss/WPSR-release-time-policy-Feb2003.pdf

Note: Text from the previous editions of “This Week In Petroleum” is now accessible through a link at the top right-hand corner of this page.