Released on September 4, 2003
(Next Release on September 10, 2003)

Down a Mill
No, we’re not talking about gasoline inventories, which actually rose by 0.7 million barrels, but about gasoline prices, which were down a tenth of a cent (a mill) on Labor Day compared to the record price (not accounting for inflation) set a week earlier. With many people expecting gasoline prices to continue to rise through Labor Day, a decline of even 1 mill was a surprise. However, anyone that read This Week In Petroleum last week should not have been surprised as we stated that, “…it is less clear which direction prices will go over the next week.”

With wholesale gasoline prices continuing to remain much below their peaks in late August, gasoline prices should continue to fall over the next few weeks, although how fast is still uncertain. Data for the week ending August 29 already indicate an improvement in the supply situation. Crude oil refinery inputs, particularly those in the Midwest (PADD II), rebounded from significant declines to return to more normal levels. As a result, finished gasoline production increased by 181,000 barrels per day last week. In addition, gasoline imports (including blending components) averaged nearly 1.2 million barrels per day during the week ending August 29, the second highest weekly average ever. With elevated gasoline prices in the United States, it is not a surprise that gasoline imports were so high or that gasoline production increased last week, as high prices encourage additional supply. And coupled with an expected decline in demand over the next few weeks, gasoline supplies should be more than adequate to meet demand, which should put downward pressure on prices. How much they will fall over the course of September is as yet unknown, but it is likely that gasoline consumers will be paying significantly less for gasoline at the end of this month than they did on Labor Day, unless unforeseen problems arise regarding the U.S. petroleum infrastructure.

U.S. Retail Gasoline Prices Decrease After Four Weeks of Gains
As mentioned above, the U.S. average retail price for regular gasoline fell last week by 0.1 cent per gallon as of September 1 to reach 174.6 cents per gallon, which is 35.2 cents per gallon higher than a year ago. This decrease comes after significant price increases during the last four weeks, including a record price increase of 12.0 cents nationally between August 18 and August 25. Prices were mixed throughout the nation last week, with the East Coast as a total seeing an increase of 2.1 cents per gallon to reach 171.0 cents per gallon, while prices in New England and the Central Atlantic rose by 4.9 cents per gallon to reach 180.8 cents per gallon and 177.6 cents per gallon, respectively. Prices on the West Coast remained the highest in the nation, despite dropping 0.5 cent to end at 204.6 cents per gallon, while the Gulf Coast region had the lowest average price at 159.2 cents per gallon.

Retail diesel fuel prices decreased last week by 0.2 cent per gallon as of September 1 to a national average of 150.1 cents per gallon, which is 11.3 cents per gallon higher than a year ago. Retail diesel prices were mixed throughout the country last week, with the Rocky Mountain region seeing the largest price increase of 1.5 cents per gallon. Regionally, the highest average price in the country was in the West Coast, where prices averaged 168.1 cents per gallon, while the Lower Atlantic region averaged the lowest retail diesel price in the country at 143.2 cents per gallon as of September 1.

Winter Fuels Maintain Strong Build, Although Stocks Not Fully Recovered
Despite above-average stockbuilds for both distillate fuel oil (used as both heating and diesel oil) and for propane that continued through August, inventories for both of these critical winter heating fuels have not fully recovered from the effects of last winter's severe weather that saw inventories drop to near record lows by the end of March 2003.

With only one month remaining before the traditional start of the winter heating season, inventories of distillate fuel oil remain 6.2 million barrels below inventories for this time last year, while propane inventories linger about 5.5 million barrels below year-ago levels. But the primary focus may be placed on distillate fuel oil inventories that, despite higher production and imports through August, compared with the same period last year, have not fully recovered to levels that would be considered comfortable leading to the start of the heating season. The buildup of distillate fuel oil inventories from the end of last year's heating season through August 2003 has totaled 26.2 million barrels. This compares favorably with about 16 million barrels averaged over the most recent 5-year period between 1998 and 2002 during this same part of the year. But with inventories at the end of this past winter at very low levels, even this greater-than-average build during the summer months has not brought inventories to a comfortable level. Perhaps most troubling is that East Coast (PAD District I) inventories of distillate fuel oil account for nearly all of the current year-over-year decline, with more than 80 percent of the decline falling within the Central Atlantic region where a large portion of the nation's heating oil customers are located. But with Labor Day weekend marking the end of the summer driving season, many refineries typically use this period to perform routine maintenance for the seasonal switch to producing a greater share of heating oil as opposed to gasoline. Regardless of the seasonal ramping up of heating oil production, distillate fuel oil inventories through August 2003 continued on a path that may put them at the beginning of the winter heating season at the lowest level in three years.

Following in the same footsteps as distillate fuel oil inventories, propane inventories, since the end of last year's heating season, reported an above-average stockbuild through August 2003 that totaled an estimated 41.1 million barrels. This level was significantly higher than the 5-year average of 34.5 million barrels reported over the same period from 1998 through 2002. However, propane inventories also fell to very low levels by the end of last winter, requiring this above-average stockbuild to bring inventories to more comfortable levels - 60 to 70 million barrels - by the start of the coming heating season. Despite propane inventories at 62.7 million barrels as of August 29, 2003, some industry observers were voicing the opinion that, due to high propane prices this past summer, many residential and other end use consumers were reluctant to fill their tanks, waiting instead for prices to fall. This is turn may have caused primary storage to be built up to higher than expected levels during a period when some level of propane inventories would normally be flowing into secondary (retailers) and tertiary (residential and other end use consumers) storage tanks. Still, propane inventories appear on track to stay within the comfort zone by the end of September 2003.

August Propane Build Sets Record
U.S. inventories of propane built by more than 6.5 million barrels, a record build for the month of August, raising inventories to an estimated 62.7 million barrels as of August 29, 2003. Last week's 1.1-million-barrel gain contributed to the August record that marks the fourth consecutive month of above-average stock builds since the beginning of the build season that typically lasts from April through September. Last week's stockbuild pushed U.S. inventories of propane to a level that tracks well within the average range for this time of year. Regional stockbuilds posted a sharp gain last week in the Midwest region, totaling nearly 0.8 million barrels, followed by an increase in the Gulf Coast region that measured more than 0.5 million barrels. While Gulf Coast inventories moved further above the average range last week, Midwest inventories continued on a path that follows below the average range. At the same time, East Coast inventories continued lower with a decline that totaled more than 0.2 million barrels, moving inventories further below the average range for this time of year. Propylene non-fuel use inventories fell by 0.2 million barrels last week to 3.6 million barrels, a level that accounts for 5.8 percent of total propane/propylene inventories.

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