Released on October 8, 2003
(Next Release on October 16, 2003)

Can’t See the Trees for the Forest
At the start of October, with the heating season near at hand, inventories of both distillate fuel oil (used as both heating oil and diesel fuel) and propane stood at about average levels for this time of year. Distillate fuel oil inventories as of October 3 stood at 131.5 million barrels, 5.0 million barrels above the same period last year, while propane inventories stood at 64.5 million barrels, about 6.1 million barrels below the prior year level. But simply looking at total inventory levels and comparing them to year-ago levels as a means of assessing the adequacy of heating fuel inventories may not be seeing the trees for the forest.

While total distillate fuel oil and propane inventories are well within their respective average ranges for this time of year, a closer examination reveals potential regional shortfalls that may pose some level of susceptibility should we have a repeat of last year’s winter weather. For instance, when analyzing the adequacy of heating oil inventories, it is far more accurate to compare the high-sulfur distillate fuel oil component separate from total distillate fuel oil, since more than half of the latter represents low-sulfur, or diesel fuel, inventories that are not typically used as heating oil unless heating oil prices are very high. Consequently, comparing total distillate fuel oil inventories for week ending October 3, 2003, shows the level down a modest 1.2 percent from the 5-year average (1998-2002), while at the same time high-sulfur distillate fuel oil (heating oil) inventories reported a much larger 13.5-percent decline. Even more dramatic was the comparison of high-sulfur distillate fuel oil inventories in the New England region, where many of the nation’s residential heating oil consumers are located, showing the region down about 18 percent compared with the same 5-year average period. With low-sulfur distillate fuel oil accounting for nearly 59 percent of total distillate fuel oil as of October 3, 2003, it’s reasonable to expect that these inventories, currently 9.5 percent above their 5-year average, would tend to skew the true picture of the actual level of inventories available to heating oil markets. While some level of fungibility does exist between diesel fuel and heating oil, i.e., using diesel fuel as heating oil, this scenario is not very likely without a significant spike in heating oil prices. Moreover, other factors, such as low crude oil inventories, prospects of a strengthening economy, and even an early cold spell would merit some further degree of caution when assessing total distillate fuel oil inventories.

Similarly, looking strictly at total propane inventories does not always reveal the whole story, since propane heating markets are as regionally diverse as those for distillate fuel oil. With total propane inventories showing levels only about 3.6 percent below the same 5-year average, regional inventories tell a much different story. The Midwest region, which encompasses the area with the largest population of residential consumers who heat with propane, reported inventories as of October 3, 2003, that were 17.9 percent below the 5-year average, while on the East Coast, where propane heating consumers are less concentrated, inventories were 24.7 percent below the 5-year average. But the Gulf Coast region, an area with one of the lowest concentration of consumers who use propane as a primary heating fuel, reported inventories 13.1 percent above the 5-year average. Although Gulf Coast inventories represent more than half the U.S. total, and are an important source of propane supply to other areas in the East Coast and Midwest, limited pipeline and other transportation capabilities remain an obstacle for moving substantial volumes of propane to these areas on short notice, particularly during peak winter demand periods. Furthermore, marginal increases in other supply sources, such as imports and production, face similar distribution system constraints. Thus, just as above-average inventories in the Gulf Coast region only act to mask inventory deficiencies in some of the more critical heating regions of the nation, added caution also needs to be observed when assessing total propane inventories as well.

Heating Fuel Price Survey Begins
Beginning this week and continuing into March 2004, prices for wholesale and residential heating oil and propane will be included in This Week In Petroleum as well as in the Weekly Petroleum Status Report and on EIA's Heating Oil and Propane Update web page. As of October 6, residential heating oil prices averaged 132.8 cents per gallon, which is 7.2 cents per gallon higher than last year at this time. Meanwhile, wholesale heating oil prices averaged 88.3 cents per gallon. Residential propane prices averaged 128.3 cents per gallon, which is 16.1 cents higher than one year ago. Wholesale propane prices averaged 65.1 cents per gallon as of October 6.

U.S. Retail Gasoline Prices Decrease by Almost 2 Cents
The U.S. average retail price for regular gasoline fell last week by 1.8 cents per gallon as of October 6 to reach 157.3 cents per gallon, which is 13.4 cents per gallon higher than a year ago. This is the sixth week in a row that prices have fallen, declining 17.4 cents since August 25, 7.0 cents of which has been in the last two weeks. Softening demand, coupled with looser supply, led to this predicted price drop, and the trend is expected to continue in the near future barring any unforeseen supply problems. However, OPEC’s recent quota cut in crude oil production has put pressure on spot prices of both crude oil and petroleum products, and this may translate to higher retail prices if the supply situation continues to tighten. Retail regular gasoline prices were down throughout most of the nation last week, with the Midwest seeing the only increase of 1.3 cents per gallon to hit 150.2 cents per gallon. The West Coast saw a decrease of 5.3 cents per gallon to reach 180.8 cents per gallon, which remained the highest region in the nation. California prices averaged 185.4 cents per gallon after falling 5.8 cents this past week. Retail diesel fuel prices increased last week by 1.6 cents per gallon as of October 6 to a national average of 144.5 cents per gallon, which is 1.5 cents per gallon lower than a year ago. Retail diesel prices were up throughout most of the country last week, with the Midwest seeing the largest price increase of 2.4 cents to reach 143.5 cents per gallon. The West Coast was the only area that saw a decrease in prices, falling 0.7 cent to reach 155.1 cents per gallon.

Propane Inventories Slip for Second Week
U.S. inventories of propane slipped nearly 0.6 million barrels last week to an estimated 64.5 million barrels as of week ending October 3, 2003, the lowest level for this period since 2000. Last week’s surprise drop marked the second consecutive weekly decline for propane inventories, possibly signaling that propane inventories may have already peaked in the run-up to the 2003-2004 heating season. Moreover, the back-to-back weekly declines contributed to moderate the September stockbuild to less than 0.8 million barrels, a level more than 58 percent below the average build reported for this month. But the rather lackluster September stockbuild had little effect on propane’s overall seasonal build that typically lasts from April through September. Over this period, U.S. inventories of propane reported a seasonal build that measured 42.8 million barrels, about 18 percent above the average seasonal build over most recent 5-year period from 1998 through 2002. Regional inventories last week moved lower in the Midwest and Gulf Coast regions by 0.2 million barrels and 0.4 million barrels, respectively, while inventories in the East Coast edged only slightly higher during this same time. Propylene non-fuel use inventories declined by 0.2 million barrels last week, to about 2.8 million barrels, a level that accounts for 4.3 percent of total propane/propylene inventories.

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