Released on July 9, 2003
(Next Release on July 16, 2003)

Small Steps Forward
U.S. oil inventories improved slightly relative to the latest 5-year averages, but they are still a long way from reaching those average levels. Inventories of all major petroleum products, along with crude oil, remain significantly below average, and although there was some improvement for the week ending July 4 as compared to the previous week, U.S. oil inventories remain months away from returning to more normal levels.

Using monthly data for 1998-2002 and interpolating to arrive at estimates for inventories as of July 4 in each of those years, U.S. oil inventories, across the board, remain well below 5-year average levels. For example, commercial crude oil inventories are 10.6 percent below the 5-year average, with total gasoline (including blending components) 5.0 percent below, jet fuel 9.2 percent below, and total commercial petroleum inventories 10.5 percent below. While it is true that all of the products listed above are slightly closer to their respective 5-year average than they were for the week ending June 27, they still are likely months away from reaching normal levels. Distillate fuel, which includes diesel fuel and heating oil, dropped further below the 5-year average, with inventories last week falling by 0.5 million barrels when they would typically increase.

So where do we stand at the midpoint of the summer season (defined as April through September)? Using weekly data, we now have estimates of where inventories were as of the end of June. Commercial crude oil inventories, at 282 million barrels, fell approximately 5.5 million barrels in June. Typically, crude oil inventories fall by 15.5 million barrels between June and September, as refiners draw down inventories to make enough gasoline for the summer season while also building up distillate fuel inventories for the upcoming winter season. However, it is highly unlikely that crude oil inventories will be drawn down by this much over the next three months, as they would end September at historically low levels were that to occur. But with less crude available to draw upon, will refiners be able to build low product inventories at even a normal pace? For example, distillate fuel inventories typically build by a total of 14.7 million barrels between the end of June and the end of September. If they build at the normal pace during the next three months, they would reach about 124 million barrels. While this is lower than many analysts might feel comfortable with, it would only be slightly lower than end-September levels in 2001 and 2002, and considerably larger than the very low end-September levels seen in 1996 and 2000. Thus, even with distillate fuel inventories falling last week, it is still very likely that they will build significantly in the coming months. Of course, this assumes there are enough crude oil imports available at “reasonable” prices, since refiners will have less crude oil inventory to draw down should imports become too expensive. As U.S. oil inventories continue to take small steps forward, the global availability of crude oil, particularly from OPEC, will remain a critical element in slowly returning inventories to more normal levels.

Gasoline Product Supplied
Much was made last week of the record gasoline demand level for the week ending June 27, 2003. Averaging nearly 9.5 million barrels per day, it was noted by many, including EIA analysts, that this might be reflecting gasoline retailers building up their supplies prior to the July 4 weekend. Remember that what we call gasoline demand, is actually an estimate of how much gasoline was supplied into the retail market, not necessarily out of the retail market (which we would call consumption). Due to timing differences, especially with regard to weekly data, there can sometimes be a difference between gasoline “product supplied” and gasoline consumption. If this was the explanation of the record gasoline “demand” for the week ending June 27, then we might expect a drop in gasoline “demand” in the following week (last week), as retailers would not have to stock up as much since more inventory would likely already be on hand due to stocking up the prior week. And in fact, this did occur, with gasoline product supplied averaging 9.1 million barrels per day for the week ending July 4, a decline of more than 400,000 barrels per day from the week ending June 27. However, to get perhaps a truer sense of gasoline demand recently, it would probably be best to average the last two weekly estimates, arriving at an average of 9.3 million barrels per day over the last two weeks. Using comparable weekly data for 2002, this is an increase of about 1.9 percent, indicating that gasoline demand might be beginning to recover. Compared to decreases of around 2 percent for the months of May and June, an increase of 1.9 percent, even over just a two-week period, is noteworthy.

U.S. Retail Gasoline Prices Edge Upwards
The U.S. average retail price for regular gasoline rose last week for the first time in three weeks. Prices increased by 0.2 cent per gallon as of July 7 to reach 148.9 cents per gallon, which is 10.7 cents per gallon higher than a year ago. Prices remained stable last week despite the warm Independence Day weekend and a strike in Nigeria that threatened further tightening in crude oil supplies. Prices were mixed throughout the country, with the Midwest seeing the largest increase, rising 0.7 cent to end at 145.0 cents per gallon. The West Coast had a price decrease of 0.8 cent, but still showed the highest prices at 173.7 cents per gallon. The region with the lowest price is the Gulf Coast, where prices for regular gasoline averaged 138.8 cents per gallon.

Retail diesel fuel prices increased for only the second time in seventeen weeks, rising 0.8 cent per gallon as of July 7 to a national average of 142.8 cents per gallon, which is 13.4 cents per gallon higher than a year ago. Retail diesel prices were mostly up throughout the nation last week, with the largest increase occurring in California, where prices rose on average by 1.2 cents to 161.4 cents per gallon. The West Coast, Gulf Coast, and the Lower Atlantic regions saw price increases of 1.1 cents.

Propane Inventories Build on Strong Imports
U.S. inventories of propane moved higher last week by nearly 2.5 million barrels, which put the nation's stockpile of propane at an estimated 46.8 million barrels as of the week ending July 4, 2003. The stockbuild, which was somewhat modest in comparison to weekly stockbuilds over the past several weeks, was boosted by the second highest weekly import level so far this year. Propane imports totaled nearly 1.8 million barrels, accounting for about 70 percent of the weekly stockbuild. However, U.S. inventories continued on a track that follows slightly below the average range for this time of year. East Coast inventories remained flat last week at 4.4 million barrels, a level that has not changed since the week ending May 30, 2003. But inventories in the Midwest and Gulf Coast regions posted significant gains measuring 1.1 million barrels and 1.3 million barrels, respectively. While East Coast and Gulf Coast inventories remain within their respective average ranges last week, inventories in the Midwest continued well below the average range during this same period. Inventories of propylene for non-fuel use increased last week to 3.3 million barrels, a level that accounts for 7.0 percent of total propane/propylene inventories, up from last week’s 5.8 percent share.

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