Released on December 3, 2003
(Next Release on December 10, 2003)

Crude Oil vs. Products
Over the last two weeks (between November 14 and November 28), U.S. commercial crude oil inventories (which exclude oil stored in the Strategic Petroleum Reserve) have declined by 9.7 million barrels. Meanwhile, gasoline inventories have increased by 4.9 million barrels, distillate fuel inventories are up 2.2 million barrels, and residual fuel inventories have risen by 1.7 million barrels. Is this a trend in the making? Or is it the latest refined product build phase of an underlying cycle of building crude oil or refined products, but not both?

Of course, it is difficult to answer these questions with just two week’s worth of data. However, there have been reports in industry trade reports that surplus crude oil barrels being exported from the Middle East have been heading more towards Asia lately than towards the Americas. With U.S. crude oil imports the last two weeks averaging just over 9.1 million barrels (as opposed to about 10 million barrels in the preceding weeks), there may be some statistical evidence that this might indeed be happening. But with inventories for the major products relatively low, especially for gasoline and residual fuel oil (see Figure 4 and Figure 6 in the Weekly Petroleum Status Report), refinery production has been increasing in order to help supply these product markets, even as crude oil imports have fallen off. Thus, a draw in crude oil inventories has been required to supply the refineries. But with U.S. commercial crude oil inventories at 284.3 million barrels, a relatively low level itself, this pattern cannot continue indefinitely. Without a substantial increase in crude oil imports sometime in the next several weeks, it may be difficult to supply enough products for current demand, while continuing to rebuild inventories, both for crude oil and major refined products. Without this increase, the cycle of either rebuilding crude oil or refined products may continue.

East Coast Propane Supply Situation
Industry concern over the adequacy of propane supply in the East Coast began surfacing last summer when the Texas Eastern Products Pipeline Co. (TEPPCO) began a summer rehabilitation program to enhance the volume of propane that could be shipped on the line between its terminals located at Todhunter, Ohio, and Greensburg, Pennsylvania. Although the rehabilitation program was scheduled to be completed by early October, inspections revealed additional necessary maintenance work that would further delay the full operation of the pipeline until sometime in mid-November. Since TEPPCO is the major supplier of propane to upstate New York and the New England region, any shortfall would be considered detrimental to the region's supply of propane prior to the start of the peak winter heating season. However, of major concern was the lost opportunity to replenish TEPPCO's strategic storage facility at Watkins Glen, New York, a large underground storage cavern that can hold in excess of one million barrels of propane that is crucial in supplementing propane supply in the region. The company's attempts to circumvent the pipeline outage with truck and rail car supply from other sources, including Canada, was further complicated by the Federal Railroad Administration and Transport Canada regulatory agencies requesting that all tank rail cars be inspected for potential welding cracks, with repairs being made by December 1, 2003. The impact of the new cross-border inspection requests could affect about 400 of the older class of rail cars out of a total of nearly 1,500 that are used to transport propane and other liquids, according to the Association of American Railroads (AAR). While many of these rail cars will be out of service for repairs, other rail cars may simply be scrapped if repairs are prohibitively costly, according to the AAR.

Compounding the East Coast supply situation further was the anticipation of new Federal hours-of-service (FHS) rules for propane truck drivers that are scheduled to go into effect on January 1, 2004. The National Propane Gas Association (NPGA) states that the new rules would go into effect during the busiest time of year when propane demand is near its winter peak.

While the repairs and subsequent slowdown on the TEPPCO system were cause for concern, the East Coast propane supply situation has shown marked improvement in recent weeks with inventories now firmly positioned within the average range for the first time since last July. With repairs to the TEPPCO system now complete, the pipeline improvements will allow an additional 8,000 to 10,000 barrels per day increase in capacity over last year from Todhunter to Coshocton, Ohio. Combined with mild fall weather that may have forestalled higher demand during October and November, industry nervousness regarding propane supply on the East Coast may well ease, at least temporarily.

U.S. Retail Gasoline Price Falls Over 2 Cents
The U.S. average retail price for regular gasoline fell last week by 2.2 cents per gallon as of December 1 to reach 149.0 cents per gallon, which is 12.6 cents per gallon higher than a year ago. Retail regular gasoline prices were down throughout the country last week, with the Midwest seeing the largest decrease of 5.1 cents per gallon to hit 143.5 cents per gallon. California prices averaged 168.0 cents per gallon after losing 1.1 cents this past week.

Retail diesel fuel prices fell after two weeks of rising prices, decreasing by 1.5 cents per gallon as of December 1 to a national average of 147.6 cents per gallon, which is 6.9 cents per gallon higher than a year ago. Retail diesel prices were down throughout most of the country last week, with New England seeing a price increase of 0.2 cent to reach 160.5 cents per gallon and California seeing a price increase of 0.5 cent to reach 166.0 cents per gallon. The largest drop occurred in the Midwest, which saw a price decrease of 2.1 cents to hit 144.8 cents per gallon.

Residential Heating Oil and Propane Prices Inch Upwards Slightly
Residential heating oil prices for the period ending December 1, 2003 modestly increased. The average residential heating oil price gained 0.1 cent from last week to reach 141.2 cents per gallon, an increase of 12.8 cents over this time last year. Wholesale heating oil prices declined once more, to 86.2 cents per gallon, a decrease of 3.3 cents from the previous week but an increase of 4.1 cents from last year.

The average residential propane price rose 0.5 cent to 134.1 cents per gallon. This was an increase of 16.6 cents over the 117.5 cents per gallon average price for this same time last year. Wholesale propane prices decreased 0.9 cent per gallon, from 63.8 to 62.9 cents per gallon. This was an increase of 7.9 cents from the December 2, 2002 price of 55.0 cents per gallon.

November Propane Stockdraw Near Average
Reflecting warmer-than-normal weather over most areas east of the Rockies during November, U.S. inventories of propane during this same period nearly matched the most recent 5-year average stockdraw with a 2.7-million-barrel draw. Including last week's modest draw that measured less than 0.2 million barrels, U.S. inventories of propane stood at an estimated 64.2 million barrels as of November 28, 2003, the highest level for this month since 2001. Regional stockdraws continued to follow seasonal patterns with Gulf Coast inventories falling more than 0.9 million barrels last week as inventories are slowly moved out of the region to the major propane heating areas in the Midwest and East Coast. Correspondingly, East Coast and Midwest inventories posted respective gains of 0.2 million barrels and 0.6 million barrels. Also contributing to the regional gains was the strong level of imports, particularly in New England (PAD District 1X) where a nearly 0.3-million-barrel level was recorded last week. Propylene non-fuel use inventories continued lower for the fourth consecutive week with a nearly 0.1-million-barrel decline. At 1.6 million barrels, propylene non-fuel use inventories accounted for a 2.5-percent share of total propane/propylene inventories as of last week, down from the prior weeks' share of 2.7 percent.

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