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

Tightness Intensifies
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) fell to 272.8 million barrels as of December 12, a drop of 5.1 million barrels from the previous week’s level and just 2.8 million barrels above the Lower Operational Inventory (LOI) level of 270 million barrels. The last time crude oil stocks were this low was back in the first quarter of 2003 (following the Venezuela strike that drastically reduced their exports to the United States earlier in the year) and in early October 2002 (following the combined effects from Tropical Storm Isidore and Hurricane Lili). But last week’s drop continued a sharp decline that has occurred over the last 4 weeks.

Between November 14 and December 12, U.S. commercial crude oil inventories have plummeted by 21.2 million barrels. This 4-week decline is the eighth largest drop over this time horizon since at least August 1982. But as the table below shows, the only times we’ve seen a larger 4-week decline, some major event (supply-side) was the primary reason behind the drop (OPEC production was reached very low levels in 1985, Iraq invaded Kuwait in August 1990, and, Tropical Storm Isidore and Hurricane Lili provided a back-to-back punch in late September/early October 2002).

Largest U.S. Crude Oil Stock Draws Over 4 Consecutive Weeks Since August 1982
(in million barrels)
4-Week Period Ending	U.S. Crude Oil Stock Draw	Comment
Feb. 15, 1985	28.3	Low OPEC Production
Oct. 12, 1990	25.3	Following Iraq invasion of Kuwait
Oct. 5, 1990	23.4	Following Iraq invasion of Kuwait
Sep. 27, 2002	23.3	Tropical Storm Isidore & Hurricane Lili
Oct. 4, 2002	22.7	Tropical Storm Isidore & Hurricane Lili
Oct. 19, 1990	22.3	Following Iraq invasion of Kuwait
Feb. 22, 1985	21.9	Low OPEC Production
Dec. 12, 2003	21.2	???

However, there appears to be no obvious singular supply-side event that can be noted for the current fall in U.S. crude oil inventories. Rather, a combination of factors, both for demand and supply, may be at work here. Very strong economic activity in the U.S., China, and elsewhere, along with continued fuel switching and recent colder weather in the U.S. and Europe appear to be boosting global demand to unexpectedly high levels. At the same time, neither Venezuelan nor Iraqi production has recovered to November 2002 levels, suggesting that increased levels from other OPEC countries are still not high enough to meet very strong winter 2003/04 demand and rebuild crude and product stocks to normal levels. The fact is that as U.S. crude oil imports have averaged slightly more than 9.2 million barrels per day over the last 4 weeks, this is a sharp decline from the nearly 10.2 million barrels per day imported during October. During the 4-week period ending December 12, crude oil net imports have averaged 9.228 million barrels, compared to 9.289 million barrels over the same period last year, clearly insufficient to meet demand growth. Over the last four weeks, domestic production has averaged 5.645 million barrels per day, which combined with imports, add up to 14.873 million barrels per day of crude oil supply, far less than the 15.412 million barrels per day that has been sent through refineries over this same period to meet product demand. Of course, the difference is going to be supplied from crude inventories. While product inventories have generally increased during this period, it has come at the expense of crude oil stocks. And with crude oil inventories approaching the LOI level, it is unclear how much longer this trend can continue. As we have noted before, it is very difficult, if not impossible, to rebuild both crude oil inventories and refined product inventories if crude oil imports average closer to 9 million barrels per day as opposed to 10 million barrels per day. Should crude oil imports remain around 9 million barrels per day over the next few weeks, the tightness seen in U.S. crude oil markets in recent weeks will most likely continue. Moreover, that tightness will inevitably translate to renewed product tightness, barring a warm winter.

U.S. Retail Average Gasoline Price Falls Again
The U.S. average retail price for regular gasoline fell last week by 1.1 cents per gallon as of December 15 to reach 146.5 cents per gallon, which is 10.2 cents per gallon higher than a year ago. Retail regular gasoline prices were down throughout the country last week, with the West Coast seeing the largest PADD-level decrease of 2.6 cents per gallon to hit 160.4 cents per gallon. California prices averaged 162.4 cents per gallon after losing 2.8 cents this past week.

Retail diesel fuel prices rose 0.5 cent per gallon as of December 15 to a national average of 148.6 cents per gallon, which is 8.5 cents per gallon higher than a year ago. Retail diesel prices were mixed last week, with New England seeing a price increase of 1.7 cents to reach 162.3 cents per gallon while the Rocky Mountains saw a decrease of 0.2 cent to hit 152.6 cents per gallon. The West Coast as a whole also saw an increase of 0.4 cent to 163.9 cents per gallon, but California saw a price decrease of 0.4 cent to 169.1 cents per gallon.

Residential Heating Fuel Prices Increase Again
Residential heating oil prices increased once more for the period ending December 15, 2003. The average residential heating oil price gained 3.2 cents from last week to reach 145.8 cents per gallon, an increase of 13.5 cents over this time last year. Wholesale heating oil prices increased 4.4 cents to reach 93.5 cents per gallon, an increase of 9.0 cents compared to the same period last year.

The average residential propane price gained 3.8 cents, increasing to 139.2 cents per gallon. This was an increase of 18.4 cents over the 120.8 cents averaged for this same time last year. Wholesale propane prices increased 6.1 cents per gallon, from 67.6 to 73.7 cents per gallon. This was an increase of 14.3 cents from the December 16, 2002 price of 59.4 cents per gallon.

Propane Posts Strong Weekly Draw
U.S. inventories of propane continued sharply lower for the second consecutive week with a 2.5-million-barrel stock draw that pushed inventories down to an estimated 59.4 million barrels as of December 12, 2003. With the elapse of nearly the first two weeks of December, inventories have fallen by 4.7 million barrels during this period, a level that accounts for less than 50 percent of the average December draw of 10.4 million barrels averaged over the most recent 5-year period from 1998 through 2002. Nonetheless, inventories at the national level continued on a track near the upper limit of the average range for this time of year. Regional declines were marked across all areas last week with the Gulf Coast reporting the steepest drop that totaled 1.4 million barrels, followed with a 0.5-million-barrel drop in the Midwest and a 0.4-million-barrel draw on the East Coast during this same time. Despite the return of cold weather to many areas east of the Rockies last week, the relatively light draw on Midwest inventories was partially offset by the strong level of Canadian imports into the region. This follows on the heels of the strong level of waterborne imports into the East Coast during the prior week that apparently blunted the stock draw for that period. Propylene non-fuel use inventories rose last week to 1.7 million barrels, a gain of nearly 0.1 million barrels that accounted for a slightly higher 2.9 percent of total propane/propylene inventories from last week's 2.6 percent share.

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