Released on September 17, 2003
(Next Release on September 24, 2003)

Prepare for the Worst; Hope for the Best
Many residents along the East Coast, particularly those in North Carolina, Virginia, Maryland, and Delaware have heard weather forecasters consistently say over the last few days, “Prepare for the worst; hope for the best,” when referring to Hurricane Isabel. Well, oil analysts could use the same phrase if they were talking to oil consumers about this upcoming winter season.

With about 3 weeks remaining until the start of the heating season (October through March), distillate fuel inventories continue to improve. As of September 12, distillate fuel inventories are higher than last year’s level for the first time in many weeks, and the highest for this time of year since 1999. However, most of this is due to high inventory levels for diesel fuel (low-sulfur distillate fuel). Heating oil inventories (high-sulfur distillate fuel) portray a different picture. Heating oil inventories nationally are nearly 16 percent below the 5-year average for this time of year. The situation appears even more troublesome in the Northeast portion of the country, where much of the heating oil is consumed. Looking at total distillate fuel for these regions (diesel fuel, which is usually more expensive, can be used as heating oil if economic circumstances warrant such a substitution), inventories are 27.5 percent lower than the 5-year average. If cold weather this upcoming winter season significantly increases demand, there will be little inventory on hand where most of the product is consumed, should supplies (refinery production from the Gulf Coast being transported into the Northeast via pipeline and imports) be insufficient in that part of the country to meet demand.

However, as consumers prepare for the worst, there is still hope for the best. Last week’s imports of crude oil set a weekly record averaging nearly 10.8 million barrels. With crude oil inventories still significantly below the average range for this time of year, more imports will need to be forthcoming in order to improve the crude oil inventory situation, and last week’s data is a good sign. In addition, distillate fuel inventories continue to increase with most of the rise last week in heating oil inventories, another sign of hope for consumers. And finally, the key wildcard each winter remains the weather. Should the weather remain normal (last year’s winter was much colder than normal for several stretches), demand may not increase enough to put a severe strain on supplies, which would help keep heating oil prices lower than what was experienced last year, particularly towards the end of the heating oil season.

Lastly, crude oil prices will also play a critical role in determining heating oil prices this winter, typically a main concern for heating oil consumers. Here again is reason for hope for consumers, as the price for West Texas Intermediate crude oil has remained below $30 per barrel since the beginning of September, with the price on September 16 falling below $28 per barrel for the first time since May 12. With OPEC meeting a week from today to determine its oil production levels, the path crude oil prices take over this upcoming winter season is still unclear. But if recent trends continue, there still may be some hope for consumers, even as they may prepare for the worst.

U.S. Retail Gasoline Prices Decrease by Another 2 Cents
The U.S. average retail price for regular gasoline fell last week by 2.0 cents per gallon as of September 15 to reach 169.7 cents per gallon, which is 29.6 cents per gallon higher than a year ago. This is the third week in a row that prices have fallen, losing 5 cents since August 25, and may be the beginning of the price decline that was expected to occur this month. Prices were mostly down throughout the nation last week, with the Gulf Coast seeing a decrease of 3.2 cents per gallon to hit 153.7 cents per gallon and the East Coast seeing a decrease of 2.4 cents per gallon to reach 166.6 cents per gallon. The Midwest was the only region that saw a price increase, with prices rising 0.7 cent to hit 165.6 cents per gallon. Prices on the West Coast remained the highest in the nation, despite dropping 4.8 cents to end at 197.9 cents per gallon, and California prices averaged 203.4 cents per gallon after falling 5.1 cents this past week. Strengthening gasoline supplies and softening demand should continue to push down gasoline prices as the market’s attention turns to heating oil ahead of the winter heating season.

Retail diesel fuel prices decreased last week by 1.7 cents per gallon as of September 15 to a national average of 147.1 cents per gallon, which is 5.7 cents per gallon higher than a year ago. Retail diesel prices were down throughout the country last week, with the West Coast seeing the largest price decrease of 3.7 cents per gallon to reach 160.4 cents per gallon. The Lower Atlantic region continued to have the lowest retail diesel price in the country at 140.7 cents per gallon as of September 15.

Propane Inventories Post Strong Build
U.S. inventories of propane continued their summer trend of strong weekly builds with a 1.1-million-barrel increase last week that positioned inventories at an estimated 64.8 million barrels as of September 12, 2003. Since the beginning of September, U.S. inventories have risen by 2.1 million barrels, a level that has already surpassed the 1.8-million-barrel build level averaged during September over the most recent 5-year period. With last week’s build, primary inventories at the U.S. level moved to a position that was well within the average range for this time of year. Regional gains were posted in the Midwest and Gulf Coast areas last week that measured a respective 0.2 million barrels and 1.2 million barrels, while East Coast inventories fell by nearly 0.4 million barrels during this same time. Strong imports continued to boost Midwest and Gulf Coast inventories, while East Coast inventories, particularly those in the lower Atlantic region, fell sharply, perhaps reflecting early preparations in response to Hurricane Isabel. The Midwest region continues on a track that is above the normal range for this time of year, while the East Coast and Gulf Coast regions continue on similar paths that track below their respective normal ranges during this same period. Propylene non-fuel use inventories fell by 0.3 million barrels last week to 3.3 million barrels, a level that accounts for 4.8 percent of total propane/propylene inventories.

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