Released on August 4, 2004
(Next Release on August 11, 2004)

Switching Focus
As the summer driving season slowly wanes, petroleum markets will soon shift their focus from gasoline to heating fuels. Although early August may seem a bit soon to be considering the adequacy of winter heating fuels, the fact remains that only about two months are left for primary stockholders to replenish their inventories of distillate fuel oil (used as both heating oil and diesel fuel) and of propane to adequate levels prior to the start of the next heating season. Following the severe winter of 2002-03, inventories of both distillate fuel oil and propane reached comparatively low levels by the end of the heating season in March 2003. At that time, distillate fuel oil inventories had fallen to a three-year low of only 99 million barrels, while propane inventories declined to a near record low of 21.9 million barrels. However, last winter's relatively modest weather left inventories of these heating fuels in far better shape by the end of the heating season, compared with the prior year. Distillate fuel oil inventories fell to a low of 104 million barrels as of the end of March 2004, while propane inventories finished the heating season at about 27.9 million barrels by this same time. Accordingly, the prospect of restocking inventories to relatively comfortable levels of about 130 million barrels for distillate fuel by the start of the next heating season beginning on October 1, would seem only a modest challenge at best. However, restocking propane inventories to a comfort level of about 60-plus million barrels by October 1 may be a more difficult challenge.

For distillate fuel oil, the summer stockbuild through July has followed a rather consistent pattern with near average monthly increases. Through the week ending July 30, 2004, distillate fuel oil inventories gained over 17 million barrels since the end of March, a cumulative gain measuring about 8 percent above the 5-year average of about 16 million barrels reported during this four-month period. With inventories of distillate fuel oil at 121.2 million barrels as of July 30, the remainder of the stockbuild season would require roughly 9 million barrels to reach 130 million barrels by October 1, which, if reached, would put distillate fuel inventories squarely in the middle of the average range at that time. Moreover, with distillate fuel oil inventories currently hovering about 3.5 million barrels above the 2003 level for this same time of year, it could reasonably be expected that distillate fuel oil inventories are headed toward a reasonable comfort level leading up to the 2004-05 winter heating season.

Propane inventories, on the other hand, have consistently lagged average stockbuilding volumes for most of the year. During the same four-month period (April through July), U.S. inventories of propane increased by about 21.2 million barrels, a level nearly 27 percent below the most recent 5-year average of about 29 million barrels. Comparatively, with inventories currently at 49.1 million barrels, propane stockholders would require about 11 million barrels added to primary inventories over the next two months in order to reach 60 million barrels by October 1, a minimum comfort level for that time of year. While certainly attainable, a build of this magnitude over the next 2 months would be nearly double the average build of 6.2 million barrels seen during this time period over the last 5 years, a somewhat unlikely scenario based on the weak pattern of stockbuilding reported so far this year. If primary stockholders approach the 5-year average build rate for the remaining two months of the traditional build season, U.S. inventories of propane would reach only slightly above 55 million barrels by the next heating season that begins in October 2004, a level below the bottom end of the average range. Nevertheless, the possibility still exists for propane inventories to reach more adequate levels if we see a late surge in imports followed by mild fall weather, a combination that would allow for propane inventories to build beyond the start of the heating season.

Year-Ago Comparisons
Knowing the absolute level of petroleum inventories is important, but they need to be put in context. This is why EIA provides graphs showing the “normal” levels throughout the year (Figures 2 through 7 in the Weekly Petroleum Status Report. But analysts also often compare current stock levels to year-ago levels and EIA provides this comparison, as well, in Table 1 of the Weekly Petroleum Status Report. In Table 1 this week, EIA reports that total commercial petroleum inventories were 963.1 million barrels as of July 30, 2003, putting current inventories at 15.3 million barrels above year-ago levels. But almost exactly one year ago, EIA reported in its Weekly Petroleum Status Report for the week ending August 1, 2003, that total U.S. commercial petroleum inventories were 936.7 million barrels, implying that current inventories are 41.7 million barrels higher than they were a year ago. So, what’s the real answer?

Unfortunately, there is no right answer to which comparison is best to use. In the current Weekly Petroleum Status Report, EIA calculates a number for July 30, 2003 by interpolating between end-June and end-July data from our monthly surveys, which are considered to be more accurate than the weekly surveys, due both to the additional time and number of respondents included on the monthly surveys. While this method uses more accurate data, it implies that there is a straight line between the end of one month and the end of another, and we know this does not occur. Thus, while using more accurate data, comparing inventories to year-ago levels in this fashion is somewhat like comparing apples (weekly data) to oranges (monthly data).

Of course, comparing this week’s data to the closest weekly data a year ago (the week ending August 1, 2003) eliminates the problem of comparing apples to oranges. However, the problem with this comparison is that it ignores the more accurate monthly data. We know from the monthly data (later revised in our annual publication) that stocks as of July 31, 2003 were 958.0 million barrels. Well, clearly inventories did not fall by more than 21 million barrels between July 31, 2003 (958.0 million barrels) and August 1, 2003 (936.7 million barrels based on weekly data)!

Thus, both year-ago comparison methods have their pros and cons. Fortunately, there is usually not a large revision between our weekly data and our monthly data. But when comparing inventories to year-ago levels, analysts need to be careful in establishing the level of inventories a year ago.

Retail Gasoline Prices Decrease 1.7 Cents
The U.S. average retail price for regular gasoline decreased by 1.7 cents per gallon from the previous week to reach 188.8 cents per gallon as of August 2, 35.2 cents higher than this time last year. This is the eighth time prices have decreased in the last ten weeks. However, with crude oil and wholesale gasoline prices rising again in recent weeks, retail prices could reverse course and begin to rise again as early as next week. But with Labor Day only a few weeks away, any price rise would likely be short-lived. Last week, retail regular gasoline prices were down throughout the country, with the Lower Atlantic seeing the largest decrease of 4.0 cents to hit 182.5 cents per gallon. Prices in California and on the West Coast remained the highest in the nation, with California prices falling by 3.4 cents to 212.8 cents per gallon and West Coast prices falling by 2.9 cents to 206.2 cents per gallon.

Retail diesel fuel prices gained 2.6 cents this week to a national average of 178.0 cents per gallon, which is 32.7 cents per gallon higher than a year ago. The largest increase for retail diesel prices last week was in the Gulf Coast, which saw an increase of 3.1 cents to hit 172.2 cents per gallon. California prices gained 0.8 cent to average 211.5 cents per gallon.

July Propane Build Below Monthly Average, Again
For the fourth consecutive month, U.S. inventories of propane fell short of reaching the 5-year average build rate with a monthly gain that totaled about 5.5 million barrels. The monthly build was 1.8 million barrels, or nearly 25 percent below the most recent 5-year average for July. With last week's modest 1.1-million-barrel increase, inventories of propane as of July 30, 2004 settled at an estimated 49.1 million barrels, a level that continues to follow a path slightly below the lower boundary of the average range for this time of year. Relatively strong inventory gains in the East Coast, Midwest, and combined Mountain/West Coast regions last week were partially offset by a surprising drop in inventories in the Gulf Coast region. Imports continued exceptionally strong last week, particularly in the Gulf Coast, although the weekly decline in inventories in that region most likely indicates that most of these volumes are being shifted into secondary storage within the petrochemical sector. Propylene non-fuel use inventories gained 0.2 million barrels last week to 2.7 million barrels, the first rise in this sector since the week ending July 2, 2004. With last week's rise, propylene non-fuel use inventories accounted for a larger 5.5 percent share of total propane/propylene inventories, compared with the prior week's 5.2 percent share.

Text from the previous editions of “This Week In Petroleum” is now accessible through a link at the top right-hand corner of this page.