Released on June 23, 2004
(Next Release on June 30, 2004)

Good News and … Not So Good News
EIA’s petroleum supply data for the week ending June 18, released earlier today (June 23) tell a “good news, bad news” story. The “good news” is that crude oil inventories continue to increase, even as they would typically be falling at this time of year. As a result, crude oil inventories are rising towards the middle of the average range. Unfortunately, the situation is not so good for most of the refined products, particularly gasoline and distillate fuel. Inventories for these two products are not keeping pace with their “ normal” patterns and are thus falling relative to the average range.

But let’s start with the “good news.” Crude oil imports last week averaged just shy of 10.2 million barrels per day, and have been at or above that level for five weeks in a row. Notwithstanding crude oil refinery inputs averaging nearly 16 million barrels per day over the four-week period ending June 18, crude oil inventories have increased by 6.5 million barrels over that time span. As a result, U.S. crude oil stocks are now at 305.4 million barrels, the highest level since August 2, 2002. More importantly, crude oil inventories are just 4.5 million barrels shy of the 5-year average for this time of year, and the closest to the middle of the average range they have been since October 2003 (Figure 3 in the Weekly Petroleum Status Report). Higher levels of crude oil inventories should help add flexibility to the U.S. oil market and thus reduce price pressures. Although high demand and high refinery operating rates limit opportunities for this additional crude oil inventory to be reflected as higher product inventories, any additional crude oil is a welcome sight for consumers, particularly with a significant portion of Norway’s oil production shut in due to an oil workers’ strike, and Iraqi oil exports still curtailed somewhat as repairs continue on their damaged pipelines.

But … the “bad news” is that product inventories are not faring as well as crude oil inventories, and with little spare refining capacity available, it may take increased refined product imports to improve this situation. Gasoline inventories have now fallen the last two weeks, albeit by small amounts. But in a month when gasoline inventories are usually fairly stable, any decline, especially considering their already low levels, is worrisome. Gasoline inventories remain below the lower end of the average range ( Figure 4 of the Weekly Petroleum Status Report) , right where they have been for nearly the entire year so far. Without significant volumes of gasoline available in inventories, the system will find it difficult to quickly respond to any surges in demand or reductions in supply related to infrastructure problems (i.e., refineries or pipelines).

What may not have caught the eye of some analysts is the distillate fuel inventory situation. This product, which includes both diesel fuel and heating oil, receives most of the attention in the winter, as heating oil is a major fuel source to heat homes in the Middle Atlantic and Northeast portions of the country. Distillate fuel inventories typically build significantly beginning in May and continuing into the fall, or at least until the weather cools enough in the Northeast to require people to start burning heating oil to heat their homes. Yet, inventories have only built by 3 million barrels since the end of April, far less than the 8 to 9 million barrels that they would typically build from the end of April to mid-June. As a result, weekly data now show that while distillate fuel stocks were near the middle of the average range at the end of April, they are now approaching the lower end of the average range ( Figure 5 of the Weekly Petroleum Status Report) . Furthermore, monthly data for April, which will be released shortly, will show that the starting point for this building period was lower than originally thought, with end-April distillate fuel inventories nearly 6 million barrels less than the weekly data indicated. Thus, if the weekly pattern since then is accurate, distillate fuel inventories could be at or even lower than their average range already. Whichever way you look at it, distillate fuel stocks will need to build at a faster rate in order for there to be enough supplies on hand this upcoming winter. Again, higher imports may be required to accomplish this since refineries are operating at high rates, and strong gasoline demand this summer will continue to encourage high gasoline yields, possibly at the expense of additional distillate fuel production.

Retail Gasoline Prices Continue to Fall
The U.S. average retail price for regular gasoline decreased by 4.8 cents per gallon as of June 21 to reach 193.7 cents per gallon, 44.1 cents higher than this time last year. This is the fourth week in a row that prices have decreased. EIA believes that prices will continue to soften in coming weeks, but we do not expect prices to return to the level prior to this spring’s run-up. Retail regular gasoline prices were down throughout the country last week, with the Midwest seeing the largest decrease of 6.8 cents to hit 181.4 cents per gallon. Prices in California and on the West Coast remained the highest in the nation, with California prices falling by 3.0 cents to 225.9 cents per gallon. Prices on the West Coast lost 4.3 cents to hit 220.0 cents per gallon, which is 44.8 cents higher than this time last year. Prices in New England and the Central Atlantic also remained above $2 per gallon (205.1 cents and 202.8 cents per gallon, respectively), despite price decreases over 3 cents.

Retail diesel fuel prices decreased for the fifth week in a row by 1.1 cents per gallon as of June 21 to a national average of 170.0 cents per gallon, which is 27.7 cents per gallon higher than a year ago. Retail diesel prices were down last week, with the West Coast seeing a decrease of 3.9 cents to hit 195.9 cents per gallon. California prices lost 3.2 cents to 201.9 cents per gallon, marking the twelfth week California average diesel retail prices have topped $2 per gallon.

Propane Inventories Higher
U.S. inventories of propane continued higher last week with a weekly build measuring 1.2 million barrels that put the nation's primary supply of propane at an estimated 41.2 million barrels as of June 18, 2004. Strong imports over the past several weeks have contributed to boost propane inventories significantly higher this month, although last week’s drop in imports most likely was the cause for the lower weekly build seen compared to the previous week. The Midwest moved higher last week to post the largest build with a 0.6-million-barrel gain, pushing inventories in the region to 16.8 million barrels. Following the prior week's strong gain, Gulf Coast inventories posted a more moderate 0.3-million-barrel increase last week, while the East Coast inched higher with a 0.1-million barrel gain during this same time. The Rocky Mountain/West Coast combined region also moved higher by 0.1 million barrels last week. Propylene non-fuel use inventories continued a downward trend with a weekly loss of 0.1 million barrels to a week-ending 2.4 million barrels, a level that accounted for a smaller 5.8 percent of total propane/propylene inventories.

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