Released on June 18, 2003
(Next Release on June 25, 2003)

Revisions (or Take 2)
On Friday the 13th (of June), the International Energy Agency (IEA) released its latest monthly Oil Market Report (OMR). The big news was that inventory levels for the Organization for Economic Cooperation and Development (OECD) for the end of March were revised up 79 million barrels from the estimates published in the May edition of the OMR. Although the OMR stressed that global inventories remained tight, markets interpreted this news as meaning that there was much more oil available than previously thought, confirming perceptions of a war-related surge in OPEC production that had not been previously evident in developed country stock data. As a result, the near-month contract for sweet crude oil on the NYMEX dropped by $0.86 per barrel, while the spot price of Brent crude oil fell by $1.09 per barrel. But was this a correct interpretation of the data?

In considering this question, it is important to understand how much data were available to the IEA for its preliminary end-March estimates, released in their May report. In early May, when the IEA was finalizing their data for the May OMR, they had weekly data for the United States for end-March inventory levels available as well as monthly government estimates from Japan, South Korea and Mexico. The IEA also used industry estimates for some European countries, and made their own estimates for the rest of the countries in the OECD. For the United States, where EIA’s Weekly Petroleum Status Report data is available, the IEA, in accordance with its standard statistical methodology, took the change from end-February to end-March inventory levels as shown in EIA’s weekly data, and applied it to the end-February data point as reported on EIA’s monthly survey. As explained below, the IEA methodology may have produced biased estimates.

If the end-February data point from the monthly survey (as published in EIA’s Petroleum Supply Monthly) is close to the end-February data point using the weekly data, then one might expect there to be little difference between the IEA’s initial estimate of end-March U.S. inventory levels and the level shown in EIA’s Weekly Petroleum Status Report. However, there was a significant gap for end-February inventories between EIA’s Petroleum Supply Monthly) and its Weekly Petroleum Status Report because of estimates of “other oils” stock levels in the Weekly Petroleum Status Report. EIA does not actually survey stock levels for “other oils” weekly, relying instead on a model to estimate these levels, based on historical seasonal trends and the latest monthly data available. However, when circumstances exist that might alter normal seasonal patterns (e.g., high natural gas prices and much colder weather than normal), EIA’s model estimates of “other oils” stock levels can deviate significantly from the final inventory data reported in the Petroleum Supply Monthly). (The Petroleum Supply Monthly) surveys individual inventory levels for all the products that make up the “other oils” category.) Thus, in this case, EIA reported a 14.6 million barrel downward revision for end-March U.S. commercial petroleum inventories (the estimate from the weekly data was 888.0 million barrels while the estimate from the monthly data was 873.4 million barrels). The IEA, however, using its methodology to estimate end-March U.S. inventories, derived a lower estimate originally, which was revised upward by nearly 20 million barrels when monthly data for March became available. At least for the United States, since EIA’s weekly and monthly data come from different surveys, history suggests that revisions for one month do not carry over into subsequent months, making it dangerous to assume that current inventory levels are off by a similar amount.

What is lost in all this confusion is that both the IEA and EIA are using an estimate of 873.4 million barrels for end-March U.S. commercial petroleum inventories as of the IEA’s June OMR. Both organizations agree that this is a very low level, both compared to year-ago levels and to seasonal norms for this time of year. The IEA states in its June report that, “Aggregate OECD crude stocks remain low while North America crude stocks, basically unaffected by the revisions, are trending below their 5-year average.” And in the United States, crude oil inventories are even further below their 5-year average than for North America as a whole. Clearly inventories remain low and more oil will be needed over the next several months to rebuild depleted inventories, no matter what preliminary estimates were made in the past. The present indicates that inventories in the OECD, and in particular the United States, are low, even after the 5.9-million-barrel build in U.S. commercial petroleum inventories last week, and EIA’s forecast of the near future (published in the Short-Term Energy Outlook) does not indicate a return to normal inventory levels for some months to come. So, while revisions to data can make for an exciting story, it’s important to concentrate on the latest “real” data available, which by all indications show that inventories remain low.

U.S. Retail Gasoline Prices Rise by Almost 3 Cents
The U.S. average retail price for regular gasoline rose last week for the second week in a row. Prices increased by 2.8 cents per gallon as of June 16 to reach 151.8 cents per gallon, which is 14.0 cents per gallon higher than a year ago. The rise in retail prices last week is due, in part, to refinery problems in California which limited supplies of gasoline there and thus put upward pressure on retail prices. In California, prices rose dramatically, increasing by 9.1 cents to hit 178.7 cents per gallon. Although retail gasoline prices were up throughout the nation last week, the increase on the West Coast averaged 8.2 cents to reach an average of 173.9 cents per gallon, making it the region with the highest average price. The region with the lowest price is the Gulf Coast, where prices for regular gasoline averaged 140.3 cents per gallon.

Retail diesel fuel prices increased for the first time in fourteen weeks, rising 1.0 cent per gallon as of June 16 to a national average of 143.2 cents per gallon, which is still 15.7 cents per gallon higher than a year ago. While retail diesel prices were mixed throughout the nation last week, they were up considerably on the West Coast, where prices rose on average by 9.7 cents to average 157.0 cents per gallon. More specifically, the most dramatic increases were in California, where refinery problems also limited diesel supplies. As a result, retail diesel prices in California increased by 13.4 cents per gallon last week to reach an average of 165.1 cents per gallon. The region with the lowest price is the Lower Atlantic, where prices for diesel averaged 137.7 cents per gallon.

Strong Imports Continue to Lift Propane Inventories
Imports of propane continued to arrive in large quantities last week, accounting for slightly less than half of the weekly build of nearly 3.7 million barrels, boosting inventories to an estimated 39.7 million barrels as of June 13, 2003. Since the beginning of June, propane imports have totaled about 3.3 million barrels, a level that could possibly reach, by month’s end, one of the highest monthly levels ever. The highest monthly propane import level of 9.7 million barrels was reached during January 2001. Nearly three-quarters of the total weekly imports last week were reported into the Gulf Coast region, which are typically waterborne from the North Sea, South America, and Algeria. Midwest imports, that measured about 0.4 million barrels, are entirely from Canada. Regional stockbuilds showed nearly identical gains of 1.8 million barrels in the Midwest and Gulf Coast regions last week, while the East Coast reported a small decline of less than 0.1 million barrels. While U.S. inventories continue to follow a path slightly below the average range for this time of year, regional inventories continued on mixed paths, with East Coast inventories slightly above the average range; Midwest inventories below the average range; and Gulf Coast inventories staying near the lower limit of the average range. Inventories of propylene for non-fuel use slipped less than 0.1 million barrels last week to 2.2 million barrels, accounting for 5.6 percent of total propane/propylene inventories, down from the prior week’s 6.3-percent share.

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