Released on August 20, 2003
(Next Release on August 27, 2003)

Blackouts and Outages
Just after 4:00 pm ET on Thursday, August 14, power went out for millions of people in the Northeast and Midwest portions of the country, as well as, parts of Canada. This power blackout caused three refineries in Ohio and Michigan, plus additional refineries in Ontario, to shut down. Six days after the blackout, substantial progress has been made in restoring operations at these refineries, but all affected units are not yet back up to pre-blackout capacity, as it may take some time to restart complex refineries following an unplanned outage.

While media attention over the past few days has, understandably, focused on impacts resulting from the power blackout, much of the big news in U.S. petroleum markets, particularly the gasoline market, is occurring in the West, far from the region impacted by the blackout.

The Energy Information Administration’s (EIA) weekly survey of retail gasoline prices showed that prices increased by 5.6 cents per gallon nationally from August 11 to August 18 (details on gasoline prices are provided in the section below). Prices in the West Coast region (Arizona, Nevada, California, Oregon, Washington, Alaska, and Hawaii) rose by 17.3 cents per gallon, the second largest regional increase EIA has ever recorded on its weekly survey (regional weekly retail prices have been gathered since May 1992). (The only other week which showed a larger regional increase was on March 29, 1999, when West Coast prices rose by 18.1 cents per gallon, going from $1.184 to $1.365 per gallon.) A price jump of this magnitude is a clear indication of significant problems with supply, and, in fact, this is the case. Besides some unplanned refinery outages in California, and earlier in the month a refinery outage in Washington, a pipeline via Tucson from the East that supplies about 30 percent of the gasoline used in Phoenix was shut down completely as of August 8 due to a rupture in the pipeline that occurred on July 30 (it had been flowing at a dramatically reduced rate immediately following the rupture). The result was to pull additional gasoline supplies from California, which had tight supplies itself already. But with many gasoline stations in Phoenix reportedly completely out of gasoline, prices increased dramatically for those stations that did have supply (there is one report that a gasoline station in Phoenix was charging $3.89 per gallon for gasoline at one point), causing additional supplies to come from places like California that would likely be drawing additional supplies itself, had the product pipeline into Arizona not shut down. This, in turn, has reduced gasoline supplies in California. Given California’s role as the dominant state in the West Coast gasoline market, this impact has spilled over to most of the region (excluding Alaska and Hawaii). Similar to electricity, the interconnectedness of gasoline markets means that a problem in one part of the country can ripple across a wide area.

But there is some good news to report. Testing on the portion of the pipeline between Tucson and Phoenix has been approved and if all goes well, the pipeline may be able to reopen sometime this weekend. This would enable additional gasoline supply to enter Phoenix, but it will take some time before markets return to normal in the West Coast region, as suppliers will be attempting to bring supplies back up to normal levels. With the Labor Day weekend less than 2 weeks away, gasoline prices are likely to rise even further on a national basis, as recent increases in wholesale prices continue to be passed through to retail markets. However, prices should ease in September, as high prices will generate additional supplies just as demand falls off following the end of the summer season.

U.S. Retail Gasoline Prices Increased Significantly
The U.S. average retail price for regular gasoline rose last week for the sixth time in seven weeks, increasing by 5.6 cents per gallon as of August 18 to reach 162.7 cents per gallon, which is 23.5 cents per gallon higher than a year ago. Prices have risen 14 cents on average nationally since June 30. Prices rose throughout the nation last week, with the West Coast seeing an enormous increase of 17.3 cents per gallon to reach 188.7 cents per gallon. In the Midwest and on the East Coast, prices rose 2.9 cents and 3.8 cents, respectively, after Thursday’s blackout caused seven refineries to shutdown in the United States and Canada. These supply problems, coupled with strengthening demand in August, are putting pressure on retail prices.

Retail diesel fuel prices increased last week by 0.6 cent per gallon as of August 18 to a national average of 149.8 cents per gallon, which is 16.5 cents per gallon higher than a year ago. Retail diesel prices were up throughout the nation last week, with the West Coast seeing a price increase of 4.2 cents to reach 169.0 cents per gallon. Lower Atlantic retail diesel prices averaged the lowest in the country at 143.6 cents per gallon as of August 18, while California saw the highest prices at 174.1 cents per gallon.

Propane Inventories Top 60 Million Barrels
Last week's stockbuild that totaled nearly 2.1 million barrels led U.S. inventories of propane to top the 60-million-barrel level for the first time since November 2002, which also puts stocks at a level approaching the comfort zone ahead of the winter heating season that typically begins in October. As of August 15, 2003, U.S. inventories of propane totaled 60.6 million barrels, the highest level since November 2002 when inventories measured 61.8 million barrels. Imports, which totaled 1.3 million barrels, continued to play a major role, accounting for nearly two-thirds of the weekly stockbuild. Moreover, since the beginning of August, primary stockholders have added nearly 4.4 million barrels to the nation’s stockpile of propane, a level that accounts for about 91 percent of the average August stockbuild averaged over the most recent 5-year period. Therefore, if the August stockbuild succeeds in topping the 5-year average, which could be reasonably expected given that the month is only half over, then August would be the fourth consecutive month to log an above average increase in inventories. Regionally, inventories edged only slightly higher in the East Coast, while in the Midwest and Gulf Coast regions, inventories posted most of the weekly gains that measured 0.8 million barrels and 1.1 million barrels, respectively. Of interest was the resumption of higher imports from Canada into the Midwest region following a period of seasonally low imports caused by the temporary shutdown of the Cochin Pipeline last month. Propylene nonfuel use inventories gained 0.2 million barrels last week to account for 6.4 percent of total propane/propylene inventories.

Note: Text from the previous editions of "This Week In Petroleum" is now accessible through a link at the top right-hand corner of this page.