Released on September 22, 2004
(Next Release on September 29, 2004)

The Oil Market Impact from Ivan
The impact of Hurricane Ivan on the population in its path was most visibly depicted by pictures taken after the storm had passed, which showed substantial flooding in many towns, as well as the wholesale destruction of many buildings. The picture that best describes the impact Hurricane Ivan had on oil markets is the petroleum supply data for the week ending September 17, which was released earlier today. Hurricane Ivan caused major delays in oil shipments and caused many refineries to shut down or cut back production last week, and the resulting impact on oil markets is clearly visible in the data.

Of course, markets will focus on the large drop in U.S. commercial petroleum inventories, as they fell by 13.1 million barrels last week, with a decrease of 9.1 million barrels in commercial crude oil inventories alone. The sharp decline in inventories reflects the drop in crude oil production, imports, and refinery production that Hurricane Ivan caused last week. While average U.S. crude oil production declined by 250,000 barrels per day last week, crude oil imports dropped by nearly 1.5 million barrels per day compared to the previous week, which was itself affected by bad weather, with the largest drop seen in the Gulf Coast region. In addition, earlier in the storm’s history it reduced exports from Venezuela, and this was also reflected in the data for last week, as imports from Venezuela appeared to be down sharply according to preliminary weekly data on the origins of crude oil imports. With the Louisiana Offshore Oil Port (LOOP), one of the largest crude oil import facilities in the country, down for much of last week, it is not a surprise that crude oil imports into the Gulf Coast dropped by 909,000 barrels per day from the previous week. With such a large drop in crude oil imports, refiners, or at least those that continued to operate, needed to supplement their supplies by drawing down crude oil inventories.

But the impact of Hurricane Ivan is also visibly evident in the refinery data for last week. First, crude oil inputs to refineries were down by nearly 1.3 million barrels per day last week compared to the previous week. Many refineries shut down as a precautionary measure as it is easier to restart from a controlled shutdown than it is from an unexpected shutdown. Many refineries are located in parts of the country that were expected to lose their electricity and as a result would have been disrupted. Some refineries were not able to obtain the types or amounts of crude oil they required due to logistical problems related to the hurricane, and as a result, curtailed their production as well. The result of all this was that refineries reduced their production of petroleum products, and thus forced wholesalers to draw down their inventories to make up for the lost production. This is why declines in gasoline and distillate fuel inventories were seen last week, even at a time of the year (September) when they would typically be increasing.

So, what happens next? With the LOOP and other oil import facilities back up and operating as of September 18, we should see a large increase in crude oil imports this week and consequently, a substantial rise in crude oil inventories. While refinery production should also increase, it is doubtful that it will return this week to the levels seen prior to Hurricane Ivan. First, at least one refinery is still shut down as a result of the storm. Secondly, crude oil inputs to refineries typically begin to decline in the second half of September and into October, as many refineries use this time of the year to perform routine maintenance on their refineries in order to reconfigure their production slate for the upcoming winter. Thus, while crude oil inventories should rebound over the coming weeks, the future of petroleum product inventories is a little less clear.

Retail Gasoline Prices Up 2 Cents Last Week
The U.S. average retail price for regular gasoline rose by 2 cents per gallon from the previous week to reach 186.6 cents per gallon as of September 20, 22.3 cents higher than this time last year. Prices were up throughout most of the country, although New England saw a 0.6 cent decrease to 187.6 cents per gallon. West Coast prices gained 0.9 cent to reach 203.4 cents per gallon, which is 11.6 cents higher than last year. Prices in California also grew 0.4 cent to 205.7 cents per gallon, which is 7.9 cents higher than this time last year.

Retail diesel fuel prices rose by 3.8 cents this week to a national average of 191.2 cents per gallon, which is 46.8 cents per gallon higher than a year ago. Prices were up throughout the country, with the West Coast seeing the largest increase of 4.8 cents to reach 208.8 cents per gallon. California prices remained the highest, rising 2.1 cents to average 215.2 cents per gallon.

Propane Inventories Continue Late Summer Surge
High imports yet again contributed to boost U.S. inventories of propane over last week with a 2.2 million barrel increase that left inventories for the week ending September 17, 2004 at an estimated 63.8 million barrels. Although Hurricane Ivan shut down a large portion of Gulf of Mexico ship traffic last week, several large propane cargos were able to offload in the Houston area during this period. The Gulf Coast region accounted for most of the weekly increase in inventories with a 2.1-million-barrel gain, while inventories in the Midwest also continued higher, but at a more moderate increase of 0.3 million barrels. Offsetting a portion of the weekly stock gain was a small decline of 0.1 million barrels in the East Coast region, while the combined Rocky Mountain/West Coast regions remained unchanged. All regional inventories remain positioned well within their respective average ranges last week, including Gulf Coast inventories, which as recently as August were below the lower boundary of the average range. Propylene non-fuel use inventories continued their downward trend of the past several weeks to 2.2 million barrels, accounting for a 3.4 percent share of total propane/propylene inventories.

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