Released on March 26, 2003
(Next Release on April 2, 2003)

Back to Normal?
Although the origins of weekly crude oil imports are preliminary and thus not published, imports from Venezuela last week seem to have returned to normal levels for the first time since the week ending December 6, 2002. This was a major reason why crude oil imports averaged nearly 9.7 million barrels per day for the week ending March 21, the largest amount since December 6, 2002, and the first week the average has exceeded 9 million barrels per day since the week ending December 20, 2002. At the same time, the price of West Texas Intermediate crude oil has recently dropped below $30 per barrel for the first time since mid-December. So do the latest weekly U.S. petroleum data signal a return to a more stable oil market?

Well, not so fast. For oil markets to return to a more “normal” state, inventories of crude oil and the major petroleum products need to rise from current low levels. However, the evidence so far suggests that either this is not happening, or that if so, the pace is barely perceptible. Even with the largest slug of crude oil imports since early December, crude oil inventories remain about 25 million barrels below the lower end of the normal range and about 41 million barrels below the middle of the normal range. While inventories of gasoline and distillate fuel are not nearly as low as crude oil, these products are also dwindling or in short supply. Gasoline inventories are currently about 6 million barrels below the lower end of the normal range and nearly 13 million barrels below the middle, while distillate fuel inventories are about 4 million barrels below the lower end of the normal range and nearly 16 million barrels below the middle of the range. Looking across all commercial petroleum inventories, as of March 21, they were nearly 41 million barrels below the lower end of the normal range and nearly 91 million barrels below the middle of the range!

So, how do inventories move back to more “normal” levels, thus reducing pressure on prices? The simple answer is either from more supply, less demand, or both. While there has been a lot of talk about how global product demand falls sharply in the second quarter (April through June), crude oil demand does not, and in the United States, both crude and product demand increase much of the time, barring abnormal weather and economic weakness. For example, in 2 out of the last 3 years, demand has actually increased in the second quarter compared to the first quarter! (In 2000, U.S. oil demand was 200,000 barrels per day higher in the second quarter compared to the first quarter; in 2001, it fell 290,000 barrels per day in the second quarter; and in 2002 it rose by 180,000 barrels per day in the second quarter.) Thus, while there may be an improvement in the inventory situation brought about by a decline in consumption, this may not happen, and even if it does, that may be a sign the economy is not doing as well as many expect. So, it’s much more likely that inventories will get back to more normal levels through an increase in supply, namely, by imports.

An increase in crude oil imports will allow crude oil inventories to build even as more crude oil is run through U.S. refineries. For example, even with the large amount of crude oil imported last week, while crude oil inventories did build at a fairly healthy rate (3.7 million barrels), crude oil inputs to refineries actually declined some. This means less product was produced, which helps explain why gasoline inventories fell (although distillate fuel inventories did increase). To get both crude oil and petroleum product inventories to increase, more crude oil needs to be imported in order to build up crude oil stocks and increase inputs into refineries. Additionally, product imports will need to be maintained at very high levels. Over the last four weeks, gasoline imports have averaged nearly 900,000 barrels per day, while the last two weeks have averaged 1 million barrels per day. This is extremely high for any time of the year, even more so for March. Distillate fuel imports have also remained high, averaging 550,000 barrels per day over the last four weeks. And yet inventories for both major products remain low, with gasoline still declining last week.

As stated above, total commercial petroleum inventories are currently nearly 91 million barrels below the middle of the normal range. With crude oil imports averaging about 9.4 million barrels per day in the second and third quarters of the last three years, for inventories to rise toward the middle of the range, it would take more than three months for this to happen should imports average 10.4 million barrels each day in the second quarter! And if supplies arrive at a pace averaging nearly 10 million barrels per day, which may even be optimistic, inventories would not return to the middle of the range until sometime in September. So, while imports did increase to normal or even above normal levels this past week, it will likely take many more weeks, or months, before U.S. petroleum inventories return to normal levels.

U.S. Retail Gasoline Price Decreases by Almost 4 Cents
The U.S. average retail price for regular gasoline fell last week after rising thirteen of the previous fourteen weeks. Prices dropped by 3.8 cents per gallon as of March 24 to hit 169.0 cents per gallon, which is still 34.8 cents per gallon higher than a year ago. This is the largest one-week price decrease since prices fell by 4.0 cents on November 26, 2001. The decline reflects, in part, the reduction in crude oil prices recently. Prices were down throughout most of the country, with the largest decrease occurring in the Midwest, where prices fell 8.5 cents to end at 159.8 cents per gallon. California prices remained above $2 per gallon for the fourth week in a row, falling to 214.3 cents per gallon. Average prices for the West Coast also stayed above the $2 per gallon mark, at 203.7 cents per gallon on March 24.

Retail diesel fuel prices decreased for the second consecutive week, falling 9.0 cents per gallon to a national average of 166.2 cents per gallon as of March 24. This is the largest one-week price decrease that has occurred since EIA began collecting this data in March 1994. Recent price decreases can be largely attributed to increases in supply that have exceeded demand for diesel. Retail diesel prices were down throughout the country, with the largest price decrease occurring in the Midwest, where prices fell 11.2 cents per gallon to end at 159.6 cents per gallon. Prices in New England remained the highest in the nation, although they declined by 9.9 cents to 189.2 cents per gallon.

Propane Inventories Post Small Build
Last week’s modest stockbuild may have signaled the end of winter with U.S. inventories of propane gaining 0.8 million barrels to end the week of March 21, 2003 at an estimated 19.0 million barrels. The relatively small gain pushed inventories slightly above the Lower Operational Limit (LOI) that was previously breached for the first time ever on March 14, 2003. Moreover, the weekly stock gain spanned across all regions with inventories in the East Coast posting a 0.1 million barrel increase, while inventories in the Midwest showed a gain that was less than 0.1 million barrels last week. Inventories in the Gulf Coast showed the largest weekly gain of nearly 0.6 million barrels during this period. Nevertheless, if last week’s stockbuild marks the beginning of the spring/summer seasonal build that typically stretches through September, U.S. inventories of propane would require a stockbuild measuring more than 40 million barrels to reach the 60 million barrel level that most industry observers believe is adequate prior to the winter heating season.

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.