Released on December 31, 2003
(Next Release on January 7, 2004)

Adios, 2003!
As 2003 comes to a close, we say goodbye, or adios, to a year that saw high energy prices throughout most of the year. Besides high natural gas prices, it was a year which set a new record (in nominal dollars, i.e. not adjusted for inflation) for the U.S. average retail gasoline price in late August. The past year was also one that saw the near-month futures price of West Texas Intermediate (WTI) crude oil, the benchmark crude oil for the United States, close at or above $30 per barrel about 66 percent of the 251 trading days in 2003. These prices occurred even as crude oil imports averaged more than 9.6 million barrels per day, or about 0.5 million barrels per day more than averaged in 2002.

Of course, there were many reasons for high prices this past year. Beginning chronologically with the oil workers’ strike in Venezuela, 2003 had cold weather in the first few months of the year, disruption in Nigerian oil supplies, a war in the oil-rich region of the Persian Gulf, a shift towards ethanol reformulated gasoline in California, a pipeline rupture in Arizona, a power blackout in a large portion of the Midwest and the Northeast, and a shift towards ethanol reformulated gasoline for New York and Connecticut at the end of the year. All of these items, either fundamentally or psychologically, affected oil prices. What will 2004 bring?

As we begin a new year, we are once again experiencing low oil inventories by historical standards. However, unlike the beginning of 2003, which saw a decline in Venezuelan oil production dramatically drop U.S. oil imports, the start of 2004 may continue to see the relatively high levels of imports seen in the latter half of 2003. Of course, with higher demand due, in part, to a growing economy, more imports are needed just to keep inventories stable. To increase inventories closer to normal levels will necessitate continued levels of crude oil imports closer to 10 million barrels per day as opposed to 9 million barrels per day. Where these imports will come from may be an interesting sidelight, as recent months have shown high import levels from Canada and Mexico, while OPEC may act to cut production even further in 2004. But ultimately, more imports will be needed in 2004 to bring inventories back to levels high enough to relieve some of the price pressures experienced in 2003.

U.S. Retail Average Gasoline Price Declines At Year End
The U.S. average retail price for regular gasoline fell last week by 0.7 cent per gallon as of December 29 to reach 147.8 cents per gallon, which is 3.7 cents per gallon higher than a year ago. Retail regular gasoline prices were mixed last week, with the West Coast seeing a decrease of 1.4 cents per gallon to hit 157.9 cents per gallon. California prices averaged 159.5 cents per gallon after losing 2.0 cents this past week. The Lower Atlantic region saw the largest price increase in the country, rising by 0.5 cent to reach 144.2 cents per gallon.

Retail diesel fuel prices declined by 0.2 cent per gallon as of December 29 to a national average of 150.2 cents per gallon, which is 1.1 cents per gallon higher than a year ago. Retail diesel prices were mixed last week, with New England seeing a price increase of 0.7 cent to reach 165.6 cents per gallon while the West Coast saw a price decrease of 0.5 cent to 163.0 cents per gallon.

Residential Heating Fuel Prices Slow Their Ascent
Residential heating oil prices showed minor increases for the period ending December 29, 2003. The average residential heating oil price gained 0.2 cent from last week to reach 149.1 cents per gallon, an increase of 8.3 cents over this time last year. Wholesale heating oil prices decreased 1.2 cents, retreating to 93.0 cents per gallon, a decrease of 2.0 cents compared to the same period last year.

The average residential propane price gained 0.3 cent, increasing to 141.7 cents per gallon. This was an increase of 16.5 cents over the 125.2 cents per gallon average for this same time last year. Wholesale propane prices decreased 2.6 cents per gallon, from 73.3 to 70.7 cents per gallon. This was an increase of 8.4 cents from the December 30, 2002 price of 62.3 cents per gallon.

Propane Inventories Continue to Decline
U.S. inventories of propane continued their seasonal decline last week with a stock draw of 2.6 million barrels that positioned inventories at an estimated 52.4 million barrels as of December 26, 2003. The combined stock draw for December totals about 11.8 million barrels and places inventories in the middle of the average range. While the Midwest and Gulf Coast inventories showed seasonal declines of 0.3 and 2.5 million barrels respectively, the East Coast showed a slight increase of 0.3 million barrels. Once again, propylene non-fuel use inventories showed a minute increase of 0.1 million barrels, which accounts for a 3.6 percent share of total propane/propylene inventories.

Note: With U.S. oil futures and spot markets closed on December 25 and 26, prices shown for December 26 reflect prices as of December 24.

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