Released on August 6, 2003
(Next Release on August 13, 2003)

Gasoline Markets Steady, But Strengthening
Heading into the last month of the summer driving season, which traditionally runs from Memorial Day weekend through Labor Day weekend, gasoline markets have remained relatively steady with respect to adequacy of supply and prices. Since the Memorial Day holiday, the average price of regular gasoline nationwide has risen from 148.7 cents per gallon as of May 26, to the current price of 153.6 cents per gallon as of August 4, a gain of less than 5 cents per gallon during this period. Although gasoline prices are 14.1 cents per gallon higher than last year at this time, current prices remain far below the March 17 peak of 172.8 cents per gallon. During this same period, gasoline demand averaged about 9.0 million barrels per day (based on preliminary data), slightly above demand over the same period last year. But this period saw some weakness during the early portions, followed by slowly rising demand that now seems likely to peak in August as vacationers hit the road in increasing numbers. Contributing to the relative early calm in summer gasoline prices was the modest summer draw in inventories through late July, although strong drawdowns in the past two weeks have boosted the summer decline to 3.2 million barrels since the week ending May 23, 2003. The combination of strong refinery production, averaging 8.6 million barrels per day, and the steady flow of imports, averaging over 0.9 million barrels per day, provided balance to gasoline markets over the period

Looking ahead, however, and given that gasoline inventories have consistently tracked at or below the lower limit of the average range during most of the summer driving season to date, the recent (probably rain-delayed) jump in gasoline demand may also pose some risk of upward pressure on prices over the remainder of the driving season. Such a scenario would be consistent with recent government statistics showing that the U.S. economy grew at a faster pace during the April through June period than previously thought, which may yet be reflected in higher, final gasoline delivery growth rates for the second quarter of this year. If this carries over into the third quarter, the long-awaited, rain-delayed solid growth in gasoline demand apparent over the last several weeks may continue to result in strong inventory drawdowns this month, given some signs of weaker new supply rates (production plus imports). As such, recent hikes in spot prices may continue to pass through to consumers in the weeks ahead, albeit that any blip is likely to be very short-lived and mild compared with the March peak.

Winter Fuels Post Above Average Builds, but Stocks Remain Low
Although winter is several months away, the period from April through September remains a critical time for primary stockholders to replenish their inventories of distillate fuel oil (used as both heating oil and diesel fuel) and for propane to adequate levels prior to the start of the next heating season. Following last winter’s severe weather, inventories for both distillate fuel oil and for propane stood at comparatively low levels by the end of the heating season in March 2003. Distillate fuel oil reached a three-year low of less than 99 million barrels, while propane fell to 21.6 million barrels, which marked the lowest level since 1970. Following the end of the heating season, the prospect of rebuilding inventories to sufficient quantities over the course of the traditional summer build season seemed challenging, compared with restocking patterns over the past several years. However, through August 2003, both distillate fuel oil and propane inventories have exhibited above-average builds compared with the most recent 5-year period from 1998 through 2002. Through the week ending August 1, 2003, distillate fuel oil inventories gained about 21 million barrels since the end of March, a level much higher than the 5-year average of 16 million barrels. Nevertheless, inventories of distillate fuel, at 119.1 million barrels as of week ending August 1, remain nearly 15 million barrels below the August 2002 level. Consequently, inventories of distillate fuel oil may begin the winter heating season at the lowest level since 2000, and thereby lack the normal cushion should a repeat of last winter’s weather occur again.

During the same five-month period, U.S. inventories of propane increased by 34.6 million barrels, a level that was much higher than the most recent 5-year average build of 29.7 million barrels. While distillate fuel oil lags far below prior-year levels, propane inventories appear headed for more adequate levels by the start of the next heating season that begins in October 2003. Despite propane inventories that are about 12 million barrels below their prior-year level for this time of year, the 56.2 million barrels in primary inventories as of August 1st are much closer to reaching the comfort zone of 60-plus million barrels before the onset of winter weather. On a note of caution, however, inventories in the Midwest region (PAD District II) have remained below the average range since February of this year. With little time remaining in the build season, Midwest inventories, which totaled 17.1 million barrels as of week ending August 1st, are expected to fall short of the average range by the end of September.

U.S. Retail Gasoline Prices Rise 2 Cents
The U.S. average retail price for regular gasoline rose last week for the fourth time in five weeks, increasing by 2.0 cents per gallon as of August 4 to reach 153.6 cents per gallon, which is 14.1 cents per gallon higher than a year ago. The national average price increase was fueled by a large jump of 5.7 cents in Midwest prices to 154.0 cents per gallon, attributable to refinery problems in that region. Prices were up throughout most of the country, with the exception being California, which saw the average price fall by 0.4 cent to end at 170.3 cents per gallon. The region with the lowest average price is the Gulf Coast, where prices for regular gasoline averaged 144.7 cents per gallon.

Retail diesel fuel prices increased last week by 1.5 cents per gallon as of August 4 to a national average of 145.3 cents per gallon, which is 14.9 cents per gallon higher than a year ago. Retail diesel prices were up throughout the nation last week, with the Midwest and California seeing price increases over 2 cents to end at 143.0 cents per gallon and 169.5 cents per gallon, respectively. Lower Atlantic retail diesel prices averaged the lowest in the country at 139.5 cents per gallon as of August 4.

August Propane Build Above Average
U.S. inventories of propane grew by nearly 2.5 million barrels last week, contributing to an above average 9.4-million-barrel July stockbuild. As of the week ending August 1, 2003, U.S. inventories stood at an estimated 56.2 million barrels, continuing on a path that tracks at the lower limit of the average range for this time of year. Regional inventories were mixed following an unexpected decline of less than 0.1 million barrels in the Midwest that positioned the region’s inventories at about 17.1 million barrels, a level 7 million barrels below the same period last year. Strong imports continued to boost Gulf Coast inventories by nearly 2.3 million barrels, while inventories in the East Coast posted a weekly gain of more than 0.1 million barrels during this same time. Propylene nonfuel use inventories soared by more than 0.4 million barrels to end the week at nearly 3.9 million barrels, accounting for 6.9 percent of total propane/propylene inventories.

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