Released on June 4, 2003
(Next Release on June 11, 2003)

A First Step
Just as parents are excited when their baby takes its first step, so too does the latest weekly data on U.S. petroleum inventories provide some excitement. Crude oil imports averaged over 10 million barrels per day for the third week in a row, and at 10.5 million barrels per day for the week ending May 30, averaged the second highest amount ever. Never before had the United States even seen that level exceeded in back-to-back weeks, much less three consecutive weeks. At the same time, crude oil inputs into refineries averaged just shy of 16.1 million barrels per day, the highest ever recorded in one week. As a result, U.S. inventories of crude oil and refined products both increased significantly, with total petroleum inventories rising 9.0 million barrels between May 23 and May 30. However, this is just the first step in a long journey.

Because inventories typically rise significantly in May, even the large build seen last week barely made a dent in the U.S. inventory deficit. For the week ending May 23, total commercial petroleum inventories were about 55 million barrels below the low end of the normal inventory range and 106 million barrels below the mid-point of the normal range. Now, after a nearly 9 million barrel build during the week ending May 30, total commercial petroleum inventories are now 53 million barrels below the low end of the normal range and 104 million barrels below the mid-point of the normal range. Thus, relative to normal inventory levels, the gain was a more modest 2 million barrels. To materially cut into the inventory deficit, very strong inventory builds will have to continue into June, July, and August. June typically builds by about 5 million barrels, July by about 3 million barrels, and August experiences a draw of about 4 million barrels. If U.S. commercial petroleum inventories increase by an average of 15 million barrels in each of those three months (for a total of 45 million barrels), that would result in a net gain of over 40 million barrels relative to normal levels, which would put total commercial inventories just slightly below the low end of the normal range by the end of August. For these steps to continue, crude oil imports will have to continue at relatively high levels in order to provide enough crude oil for refineries to meet seasonally higher summer consumption, while rebuilding crude oil and product inventories.

Other Countries Make Up For Reduction of Iraqi Imports
Although the origins of weekly crude oil imports are preliminary and thus not published, it appears that very small amounts of Iraqi crude oil continue to arrive in the United States. The amounts are so small that they are essentially inconsequential to the amount of oil the United States has imported in recent weeks. There are reports that Iraq may begin to export a small amount of oil currently in storage in Ceyhan, Turkey within the next few weeks. However, at the time of this report, it is still unclear when Iraqi oil exports will resume in significant volumes. In the meantime, all of the top exporters of crude oil to the United States (Saudi Arabia, Mexico, Venezuela, Canada, and Nigeria) are maintaining shipments at relatively high levels in the last three weeks. With three of these countries members of OPEC, the sustainability of import levels this high may depend on the outcome of OPEC’s meeting next Wednesday in which they will discuss the possibility of production cuts and consequently a reduction in exports.

U.S. Retail Gasoline Prices Fall Again
The U.S. average retail price for regular gasoline fell last week for the tenth time in eleven weeks. Prices decreased by 1.4 cents per gallon as of June 2 to reach 147.3 cents per gallon, which is 8.1 cents per gallon higher than a year ago. Since March 17, the average price for regular gasoline has declined by 25.5 cents per gallon. Retail prices fell again this week despite fluctuations in relatively low gasoline inventory levels over the last two weeks. Prices were mostly down throughout the nation last week, with prices dropping the most on the West Coast and in the Midwest, where prices fell 2.2 cents to hit 167.7 cents per gallon and 144.9 cents per gallon, respectively. The region with the lowest price is the Gulf Coast, where prices for regular gasoline averaged hit 136.4 cents per gallon. California prices continued to drop, decreasing by 3.1 cents to 173.2 cents per gallon. The Lower Atlantic was the only region that saw a price increase, rising by 0.1 cent to 137.4 cents per gallon.

Retail diesel fuel prices decreased for the twelfth consecutive week, falling 1.1 cents per gallon as of June 2 to a national average of 142.3 cents per gallon, which is still 12.3 cents per gallon higher than a year ago. Diesel fuel prices continue to fall as market conditions improve. Retail diesel prices were down throughout the nation last week, with the Lower Atlantic decreasing by 1.9 cents. The region with the lowest price is the Gulf Coast, where prices for diesel averaged 136.1 cents per gallon, while the region with the highest price is New England, where prices averaged 157.0 cents per gallon on June 2.

Imports Key to Above Average May Propane Stockbuild
U.S. inventories of propane continued to build at a strong pace last week with a nearly 2.9-million-barrel increase that pushed inventories up to an estimated 33.2 million barrels as of May 30, 2003. A steady flow of imports accounted for nearly 4.5 million barrels of the 9.7-million-barrel monthly build, proving to be a major factor for inventories surpassing the 9.3-million-barrel build averaged for this month over the most recent 5-year period. But the strong May stockbuild was not enough to lift inventories to within the average range last month and continues to show inventories at their lowest May level since 1996. Regional gains were strong with East Coast inventories up nearly 0.5 million barrels, while Midwest and Gulf Coast inventories posted gains totaling 0.6 million barrels and 1.7 million barrels, respectively. Regional inventories continued below their respective average ranges last week in the Midwest and Gulf Coast regions while East Coast inventories edged moderately above the average range during this same period. Inventories of propylene for non-fuel use rose by 0.1 million barrels last week to nearly 2.0 million barrels but accounted for a slightly lower 6.0 percent of total propane/propylene inventories compared with the prior week’s 6.3 percent share.

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