Released on March 3, 2004
(Next Release on March 10, 2004)

… And That’s a Wrap!
As winter slowly rolls to a close and with peak heating season demand clearly in the rear-view mirror, the 2003-04 winter heating season will most likely fall short of making it into the record books, at least for such categories as record cold temperatures, all-time low inventories or record high consumption levels, as measured by product supplied. Although oil industry analysts don’t really consider winter over until the end of March, barring a major cold spell this month, cumulative data for both temperature and heating fuels data will, in all likelihood, not show any dramatic changes between now and the end of the 2003-04 heating season.

Estimated 2003-04 weekly data show that total distillate fuel oil (used for both heating oil and diesel fuel) consumption averaged about 4.0 million barrels per day during the first five months of the 2003-04 heating season (October through February), far from a winter record but close to last year’s level of demand for the same period. The record for total distillate fuel oil demand reached more than 4.1 million barrels per day during the frigid winter of 1976-77. Monthly temperatures (weighted on an oil home heating customer basis) compiled from the National Oceanic and Atmospheric Administration (NOAA) from October through February, show that the winter heating season so far was nearly average at the U.S. level, but more than 1 percent colder than normal in both the New England and Middle Atlantic regions, where most of the nation’s heating oil is consumed. The winter draw on total distillate fuel oil inventories through February 27, 2004, measured about 20.6 million barrels, a level about 14 percent below the nearly 24 million barrels averaged over the most recent 5-year period from 1998-99 through 2002-03. However, East Coast (PAD District I) inventories of high-sulfur distillate fuel, or heating oil, over the same 5-month period dropped by a relatively modest 9.2 million barrels, down about 48 percent from the average draw seen over the same 5-year period. While total distillate fuel oil inventories remain close to the lower end of the average range for this time of year, East Coast inventories, including high-sulfur distillate, remain within the average range. What this implies is that during the next build season, which typically occurs between April and September, primary stockholders of distillate fuel oil may not have to climb out of a deep hole of low inventories that was the case one year earlier when inventories ended the heating season in March 2003 at a comparatively low 99 million barrels.

Following the roller-coaster of cold and warm temperatures during the 2003-04 heating season, U.S. propane markets also withstood a rather mixed winter season with inventories remaining within their respective regional average ranges for most of the winter, except on the Gulf Coast where inventories moved below the average range starting in January 2004. January was the only month with significantly colder-than-normal temperatures over most of the major propane consuming regions in the nation during the first five months of the 2003-04 heating season. In contrast to distillate fuel oil markets that experienced slightly colder-than-normal weather during most of the heating season, the major propane consuming regions, which are predominantly located in the Midwest, experienced slightly warmer-than-normal temperatures for most of this winter. Consequently, over the course of the winter heating season, the draw on Midwest inventories was more than 30 percent below the 5-year average for this region, measuring 11.1 million barrels, compared with the comparable 5-year average of 15.9 million barrels. However, since Gulf Coast inventories of propane act as a supplemental source of supply for both the Midwest and East Coast regions, Gulf Coast inventories experienced exceptionally sharp declines following January’s blustery cold weather. In fact, the draw on Gulf Coast inventories is currently on track to set a heating season record that could reach nearly 25 million barrels by the end of March 2004. Accordingly, the overall draw on U.S. inventories of propane for the first five months of the 2003-04 heating season totaled about 36 million barrels, a level nearly 3 percent above the most recent 5-year average for this period. The record draw on U.S. inventories of propane occurred during the 2002-03 heating season that totaled 48.9 million barrels. Moreover, if the 5-year average stockdraw for March is combined with the cumulative stockdraw for the first five months of the current heating season, U.S. inventories of propane would end winter at an estimated 23 million barrels. Although not a record low, primary stockholders would again be under great pressure to rebuild inventories to adequate levels leading up to the start of the next heating season. So, as the 2003-04 winter heating season comes to a close, the focus can now be turned to other critical petroleum market developments, such as the evolving situation with gasoline markets that promise another dramatic performance in 2004.

U.S. Retail Average Gasoline Gains 3 Cents
The U.S. average retail price for regular gasoline increased last week by 2.9 cents per gallon as of March 1 to reach 171.7 cents per gallon, which is 3.1 cents per gallon higher than a year ago. The national retail price hasn’t been this high since September 8, 2003. Retail regular gasoline prices were up throughout the country last week, with the West Coast still driving the national increase with a 7.4-cent jump in prices to hit 202.1 cents per gallon. California prices averaged 210.9 cents per gallon after gaining 8.0 cents this past week and keeping California prices over $2 for the second week in a row.

Retail diesel fuel prices increased by 2.4 cents per gallon as of March 1 to a national average of 161.9 cents per gallon, which is 13.4 cents per gallon lower than a year ago. Retail diesel prices were up throughout the country last week, although Northeast prices were flat. The West Coast saw the largest price increase at 6.3 cents to hit 185.1 cents per gallon, with California also climbing 7.5 cents to hit 193.9 cents per gallon.

Residential Heating Fuel Prices Decrease Slightly
Residential heating oil prices decreased for the period ending March 1, 2004. The average residential heating oil price fell 0.7 cent from last week to reach 160.2 cents per gallon, a decrease of 23.6 cents from this time last year. Wholesale heating oil prices increased 7.7 cents to 103.7 cents per gallon, a decrease of 25.6 cents compared to the same period last year.

The average residential propane price fell 0.5 cent, decreasing to 153.0 cents per gallon. This was a decrease of 19.2 cents over the average for this same time last year. Wholesale propane prices increased 1.5 cents per gallon, to reach 74.9 cents per gallon. This was a decrease of 39.9 cents from the March 3, 2003 price of 114.8 cents per gallon.

Weekly Propane Draw Mixed
Following sharp declines over the past several weeks, U.S. inventories of propane posted a stockdraw that measured less than 0.3 million barrels, positioning the nation’s primary supply of propane at an estimated 25.9 million barrels as of February 27, 2004. The overall February draw on primary inventories totaled about 8 million barrels, surpassing the 7.4 million barrel level averaged over the most recent 5-year period. Nevertheless, U.S. inventories continued to track at the lower limit of the average range for this time of year. Regional inventories were mixed last week with East Coast and Gulf Coast regions showing modest respective gains of 0.2 million barrels and 0.3 million barrels, while the Midwest region moved lower by more than 0.7 million barrels during this same time. Propylene non-fuel use inventories fell by nearly 0.1 million barrels last week to 1.4 million barrels, accounting for a 5.4 percent share of total propane/propylene inventories.

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