Released on February 26, 2003
(Next Release on March 5, 2003)

Crude Imports Still Low
Despite market expectations of rising U.S. crude oil imports, at 8.3 million barrels per day during the week of February 21, imports actually dropped 400,000 barrels per day. As a result, crude oil inventories were drawn down by 1.0 million barrels in order to have crude oil refinery inputs average nearly 14.5 million barrels, which at current product demand levels, was insufficient to keep petroleum product inventories from falling further. Since the week ending January 24, crude oil imports have averaged less than 8.3 million barrels per day, while refinery inputs have averaged less than 14.2 million barrels per day. With reduced crude oil refinery inputs comes less refinery output. As a result, over this 5-week period total petroleum product inventories have plummeted by more than 45 million barrels, or about 1.3 million barrels per day. Although crude oil refinery inputs have been insufficient to keep product stocks from plunging, crude oil inventories have not risen; in fact they’ve been drawn down by 2.0 million barrels during the same period. Normally, if crude oil refinery inputs are relatively low, crude oil not going into refineries is put into inventories. But with crude imports averaging closer to 8 million barrels per day as opposed to 9 million barrels per day, crude oil inventories and product inventories (as a result of lower production levels) are likely to remain low for quite some time, or at least until oil demand drops significantly for a sustained period. Thus, while many analysts are interested in seeing what inventories are doing, perhaps the most important barometer to watch in the weekly crude oil statistics is the amount of crude oil imported into the United States. Without a sustained period in which U.S. crude oil imports average 9 million barrels per day or more, we will likely continue to see low inventory levels across the board.

Propane Markets Begin to Show Strain of Severe Weather
The apparent inventory cushion that existed at the beginning of the 2002-03 heating season has essentially been worked off following the extreme cold weather and near paralyzing snowstorms that have battered much of the Midwest and East Coast regions during January and February 2003. While the severe weather may be the major reason behind the tightness in propane markets in recent weeks, other factors have also contributed to the added strain felt by some propane suppliers, marketers, and consumers. Although EIA lacks data on weekly imports and exports of propane, industry sources indicate that the labor strikes in Venezuela in recent months caused a shortage of propane supply in many Central and South American countries as well as the Caribbean Islands. As a result, a shift in waterborne movements of propane occurred, with industry sources reporting cargos of propane being exported from the U.S. Gulf Coast, while at the same time traditional imports from West Africa and the Middle East, most likely originally destined to the United States, were being diverted to these countries. Industry sources also say that the propane supply situation is compounded by a significant slowdown in withdrawal rates of propane from underground storage wells in the midcontinent region, which is occurring as storage levels approach the lower limits of these reservoirs. Brine problems on the U.S. Gulf Coast are also contributing to deliverability problems in the area while a major pipeline company in the region recently issued rules requiring shippers to maintain certain minimum inventories in order to help the pipeline maintain adequate line pressure. Another factor that may have a potentially huge impact on near-term propane production levels is the rapid rise in natural gas prices that is forcing some natural gas plants in South Louisiana and Texas to either shut-down or reduce their level of propane production. The same situation occurred two years ago when rapidly rising natural gas prices provided a disincentive for gas processors to extract some level of propane in their operations because of the higher value achieved by leaving the propane in the natural gas stream. And, in the same context, refiners are beginning to burn propane for internal fuel use as an alternative to the higher priced natural gas. Thus, propane supplies for the remainder of the 2002-03 heating season may come under additional strain as some producers begin to further constrain supply, while at the same time, pipelines and distributors are experiencing operational problems.

Midwest Crude Oil Stocks Continue Falling
After falling to the lowest level since EIA has kept PADD-specific inventory levels (dating back to August 1989) during the week ending February 14, crude oil inventories in PADD II (Midwest) fell further last week and are once again the lowest level since at least 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 Ends Its Ten Week Climb
The U.S. average retail price for regular gasoline fell last week after rising for ten weeks in a row, decreasing by 0.2 cent per gallon as of February 24 to end at 165.8 cents per gallon, which is 54.2 cents per gallon higher than a year ago. Does this decline in weekly retail prices represent a pause, or are still higher prices ahead? While the outlook could go either way, strong gasoline demand ahead of the normal seasonal increase, extensive refinery maintenance, and still tight crude oil supply, may be pointing to added price pressure in the months ahead. Prices were mixed throughout the country, with the largest increase occurring on the West Coast, where prices rose 6.1 cents to end at 184.7 cents per gallon. California saw prices hit 192.2 cents per gallon, which is the highest it has been since June 18, 2001. Prices fell on the East Coast and in the Midwest, with prices in the Midwest falling by 4.1 cents to end at 162.4 cents per gallon.

Retail diesel fuel prices increased for the sixth straight week, rising 0.5 cent per gallon to a national average of 170.9 cents per gallon as of February 24. This was the highest diesel price since EIA began recording this data, topping last week’s record price. Retail diesel prices were up throughout most of the country, with the largest price increase occurring in the Rocky Mountains, where prices rose 3.0 cents per gallon to end at 166.8 cents per gallon. Prices dropped on the East Coast by 0.2 cent, but prices in New England still rose by 0.3 cent to hit 188.8 cents per gallon, the highest price in the nation.

Heating Fuels Prices Continue Upward But At A Slower Rate
Residential heating oil prices rose slightly for the period ending February 24, 2003. The average residential heating oil price was 175.2 cents per gallon, up 2.1 cents per gallon from the previous week, and is 59.3 cents per gallon higher than last year at this time. Meanwhile, wholesale heating oil prices increased by 4.6 cents per gallon this week, reaching 120.7 cents per gallon.

Residential propane prices increased 0.7 cent per gallon from 149.7 cents per gallon to 150.4 cents per gallon, and are 37.9 cents higher than one year ago. Meanwhile, wholesale propane prices increased 5.0 cents per gallon, from 76.3 cents per gallon to 81.3 cents per gallon. However, this rise does not include the latest increases seen over the last couple of days in propane spot prices (see article above).

Propane Inventories
Cold weather continued to whittle away at U.S. inventories of propane last week with a stockdraw that measured 2.9 million barrels, leaving the nation’s stockpile of propane at an estimated 23.0 million barrels as of the week ending February 21, 2003. U.S. propane inventories continued to move further below the average range and now stand at a level that is only 4.5 million barrels above the Lower Operational Inventory (LOI). The LOI is a level that is indicative of a situation where inventory-related supply flexibility could be constrained. Regional declines last week were mostly limited to the Midwest and Gulf Coast regions that reported nearly identical stockdraws measuring about 1.4 million barrels each. East Coast inventories remained flat during this same period. Moreover, last week marked the first time in several years that U.S. and regional inventories in the East Coast, Midwest and Gulf Coast simultaneously remained below their respective average ranges.

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