Released on September 15, 2004
(Next Release on September 22, 2004)

Stormy Weather
As predicted by the National Hurricane Center, it has been an active hurricane season this year. While “Stormy Weather” may bring to mind the popular jazz song made famous by Billie Holliday and Ella Fitzgerald, the attention of oil traders and analysts have been keenly focused on hurricanes Charley, Frances, and Ivan. With Hurricane Ivan in the Gulf Coast region today, resulting in the shut-in of over 1 million barrels per day of crude oil production and many refineries, traders and analysts are closely monitoring developments.

Past experience suggests that the impact of hurricanes on oil markets usually dissipates rapidly. Tropical Storm Isidore and Hurricane Lili hit the Gulf Coast in late September and early October 2002 within a few days of each other, and as a result, U.S. crude oil inventories plummeted by 14.7 million barrels over a two-week period. However, and this is important, over the following two-week period, U.S. commercial crude oil inventories rose by 15.7 million barrels. As long as there is no significant damage to port facilities, oil platforms, or refineries, oil markets can “weather the storm.” Of course, with oil markets as tight as they are now (little spare global crude oil production capacity and U.S. refinery throughput running around 96 percent utilization over the last several weeks), it won’t take much of a disruption to have prices jump even higher. But unless there is significant damage to infrastructure, any price rise related to Hurricane Ivan could well be short-lived.

That said, however, there can be quantifiable impacts from hurricanes, as Tropical Storm Isidore and Hurricane Lili showed in 2002, and Hurricane Frances showed in the data released today. For the week ending September 10, U.S. commercial crude oil inventories (excluding the Strategic Petroleum Reserve) fell by 7.1 million barrels, not unlike the average weekly drop seen in the two-week period following the storms in 2002. Last week’s drop was largely attributable to a 797,000 barrel per day drop in crude oil imports, with an even greater fall seen in Gulf Coast imports. This was likely due to delays in tanker movements during parts of the week because of Hurricane Frances, and the same thing is happening now with Hurricane Ivan. This will probably result in a low amount of crude oil being imported this week, as well, and could easily result in another significant drop in crude oil inventories in data to be reported next Wednesday (September 22). However, unless storms continue to wreak havoc with Gulf Coast shipping (Tropical Storm Jeanne is near Puerto Rico now, but the projected path has it reaching the United States along the East Coast, if at all), all the tankers waiting to offload their crude oil will eventually make it to their respective ports and we would see high amounts of imports and a build in crude oil inventories after the storms have passed. With many refiners expected to come offline soon, anyway, to perform routine maintenance later this month and next month, it would not be surprising to see significant crude oil builds occur after the storms have left their mark. But the short-term outlook for U.S. oil markets hinges more on whether significant damage occurs as a result of Hurricane Ivan as opposed to the temporary closures of the ports, platforms, and refineries.

Retail Gasoline Prices Decrease By 0.4 Cent
The U.S. average retail price for regular gasoline fell by 0.4 cent per gallon from the previous week to reach 184.6 cents per gallon as of September 13, 14.9 cents higher than this time last year. Prices were down throughout most of the country, except in the Midwest, which saw a penny increase to 180.3 cents per gallon. West Coast prices dropped by 1.6 cents to reach 202.5 cents per gallon, which is 4.6 cents higher than last year. Prices in California also fell by 2.0 cents to 205.3 cents per gallon, which is 1.9 cents higher than this time last year.

Retail diesel fuel prices rose by 0.5 cent this week to a national average of 187.4 cents per gallon, which is 40.3 cents per gallon higher than a year ago. Prices were up throughout the country, with the East Coast seeing the largest increase of 0.9 cent to 186.7 cents per gallon. California prices remained the highest, falling 0.5 cent to average 213.1 cents per gallon.

Propane Inventories Continue Strong Build
The late summer surge in the buildup of propane inventories continued last week as primary stockholders added 1.9 million barrels to U.S. inventories to end the week of September 10, 2004 at an estimated 61.6 million barrels. With the most recent 5-year average stockbuild for September measuring about 1.5 million barrels, the September 2004 stockbuild is almost assured of surpassing the 5-year average, or even setting a record build for September, which occurred during September 1970 of nearly 4.6 million barrels. Imports again played a major role in the weekly stockbuild that contributed to boost Gulf Coast inventories higher by 1.3 million barrels. Midwest inventories also moved up last week with a weekly build measuring 0.3 million barrels, while East Coast inventories remained stagnant at 5.3 million barrels for the third consecutive week. The combined Rocky Mountain/West Coast region added 0.2 million barrels during this same time. Propylene non-fuel use inventories plunged lower to only 2.4 million barrels, a weekly decline of 0.3 million barrels that accounted for 3.9 percent of the total volume of propane/propylene inventories. This was significantly down from the prior week's 4.5 percent share.

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