Released on May 7, 2003
(Next Release on May 14, 2003)

Do the Math
Crude oil that is domestically produced or imported has essentially two places to go: into refineries or into inventories. Of course, most of the crude oil is put into refineries to make refined products such as gasoline, diesel fuel, jet fuel, heating oil, etc. These products are then used or stored for use later. Sometimes, crude oil inputs to refineries are high enough that there is not enough crude oil supply (domestic production plus imports) and thus inventories are needed to make up the difference. Other times, there is excess supply that goes into inventories for use at some future date. How this balance shapes up dictates whether inventories will increase or decrease. If, for example, crude oil inputs to refineries average 15.8 million barrels per day for the months of May, June, and July, then crude oil imports would need to average 10.0 million barrels per day (assuming domestic production of 5.8 million barrels per day) in order for crude oil inventories to remain flat. Using this example, any additional imports above 10.0 million barrels per day would go into building up U.S. crude oil inventories, which are very low at the moment. However, if U.S. crude oil imports were to average less than 10.0 million barrels per day over this period, crude oil inventories would need to be drawn down even further in order to supply enough crude to the refineries. Given the fact that U.S. domestic crude oil production does not vary much in the short-term and is very likely to average about 5.8 million barrels per day over the next three months, the key factors in determining the near-term path of crude oil inventories will be the level of inputs to refineries and the level of imports.

It is not farfetched to expect crude oil inputs to refineries to average 15.8 million barrels per day over the next three months. Refinery output typically peaks during this period as the system attempts to supply enough gasoline into the U.S. market, while at the same time rebuild heating oil inventories drawn down last winter in order to have sufficient volumes available next winter. Last year, refinery inputs were much lower (averaging about 15.4 million barrels per day over the May through July period), since a warm winter in 2001-02 caused the heating oil inventory draw to be modest, necessitating a much smaller build last summer. Large gasoline imports also helped to supply the gasoline market last summer, reducing the amount of gasoline production that was required. However, in 2001, refinery inputs averaged 15.6 million barrels per day during the May through July period. With product inventories now at low levels across almost all products, along with demand growth since 2001, most analysts are expecting refinery inputs to average around 15.8 million barrels per day over the next three months.

So, will crude oil imports average above or below 10.0 million barrels per day over the next few months? Data for the week ending May 2 may provide some insight into answering this question. U.S. crude oil imports for the week ending May 2 averaged nearly 9.9 million barrels per day, and this included some significant volumes of Iraqi crude oil, albeit at levels less than has been typically imported recently. With the last Iraqi oil exports shipped during the week ending March 21, it is likely that Iraqi crude oil imports will be significantly reduced in the data released next week. For most of May, June, and perhaps even into July, the United States will not receive any crude oil from Iraq. Imports from other countries would need to rise by an amount sufficient to make up for reduced imports from Iraq, for U.S. crude oil imports to average 10.0 million barrels per day over the next three months. If this does not happen, either crude oil inventories will be drawn down from levels that are already low, or less crude oil will go into refineries, meaning that refined product inventories will not build back to normal levels soon. Therefore, unless import levels are maintained, it is very unlikely that the United States will be able to dig out of the inventory hole that currently exists by the end of summer. While low inventories do not necessarily mean that prices will rise, it does limit flexibility in U.S. oil markets should there be some kind of major petroleum infrastructure problem this summer, or for that matter, next autumn.

U.S. Retail Gasoline Prices Continue to Drop
The U.S. average retail price for regular gasoline fell last week for the seventh week in a row. Prices dropped by 4.4 cents per gallon as of May 5 to hit 151.3 cents per gallon, which is still 11.8 cents per gallon higher than a year ago. Over the last seven weeks, the average price for regular gasoline has declined by 21.5 cents per gallon. The recent reductions in gasoline prices are largely due to continuing decreases in crude oil prices. Prices were down throughout the nation last week. The region with the lowest price is the Gulf Coast, where prices for regular gasoline averaged 140.3 cents per gallon, while the region with the highest price is the West Coast, where prices for regular gasoline averaged 183.7 cents per gallon on May 5. The Midwest saw the largest price decrease, with the average price falling 6.7 cents over the past week. California prices continued to drop, decreasing by 4.9 cents to 192.8 cents per gallon.

Retail diesel fuel prices decreased for the eighth consecutive week, falling 2.4 cents per gallon as of May 5 to a national average of 148.4 cents per gallon, which is still 17.9 cents per gallon higher than a year ago. Diesel fuel prices are down in conjunction with recent drops in crude oil prices and in anticipation of weaker market conditions. Retail diesel prices were down throughout the nation last week. The region with the lowest price is the Gulf Coast, where prices for diesel averaged 139.0 cents per gallon, while the region with the highest price is the Central Atlantic, where prices averaged 164.7 cents per gallon on May 5.

April Propane Stockbuild Below Average
Despite a reasonably strong 1.6-million-barrel weekly build for the week ending May 2, U.S. stockholders of propane fell short of reaching the 5-year average inventory build during April 2003. Inventories gained a rather lackluster 2.4 million barrels during April, ending the week of May 2, 2003 at an estimated 23.5 million barrels, the lowest level for this time of year since 1970. The average stockbuild for April over the most recent 5-year period totaled about 5.6 million barrels, with end-of-month inventories ranging from a low of 25.6 million barrels to a high of 45.9 million barrels. Although April inventories have in past years posted lower monthly builds, with some years even showing stockdraws, the propane inventory situation this year is particularly pressing since inventories are beginning the stockbuilding season from the lowest level since 1970. However, the April build was partially offset by chilly temperatures early in the month that were about 10 percent colder-than-normal in the New England and Middle Atlantic regions, essentially extending the heating season several weeks further into the traditional build season. But with recent seasonal builds that average more than 36 million barrels between April and September, propane stockholders are facing an increasingly mounting struggle to replenish the Nation’s supply of propane before the start of the next heating season. Regional gains were more evenly spread across all areas last week, compared with the prior week that reported an unexpected decline in the Midwest region. Last week’s gains totaled 0.1 million barrels in the East Cost, 0.9 million barrels in the Midwest, and 0.5 million barrels in the Gulf Coast. Inventories of propylene for non-fuel use fell last week to less than 1.4 million barrels, a level that accounts for 5.9 percent of total propane/propylene inventories.

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