Released on September 29, 2004
(Next Release on October 6, 2004)

Not So Fast
Last week, in this space, we postulated that we would see a large rebound in crude oil imports and domestic production as the recovery from Hurricane Ivan occurred in earnest, leading to a substantial increase in crude oil inventories.  Commercial crude oil inventories did increase by 3.4 million barrels last week, leaving much still to build to make up for the 16.1 million barrels lost in the previous two weeks.

So, why have crude oil inventories not recovered more quickly?  First, recovery from shut-in oil production has progressed much slower than expected.  As of September 28, the U.S. Minerals Management Service was still reporting shut-in crude oil production of nearly 0.5 million barrels per day, with lost cumulative production of nearly 11.8 million barrels since the storm.  In addition, Hurricane Ivan, which eventually turned into a tropical depression, returned to the Gulf of Mexico last week.  On its second visit, Hurricane Ivan was still powerful enough to reportedly shut down the Louisiana Offshore Oil Offshore Port (LOOP) for a day.  However, crude oil imports did average 9.9 million barrels per day last week, with the vast majority of the nearly 1.5 million barrels per day increase from the previous week coming into the Gulf Coast region.

It does appear that Hurricane Ivan continued to impact oil markets last week, based on petroleum supply data released earlier today.  Not only did domestic crude oil production drop below 5 million barrels per day, but crude oil inputs to refineries averaged 14.0 million barrels per day, a drop of 2.0 million barrels per day from just two weeks ago.   While at least one refinery remained down last week as a direct result of Hurricane Ivan, EIA received comments from other refineries claiming that inputs were reduced due to their inability to get sufficient quantities of crude oil to maintain desired utilization rates.  This was in part due to the large drop in imports the previous week.  As refiners drew down their crude oil inventories to make up for the initial lack of imports, it appears that some were running a little short while they were waiting for supplies to be replenished.   With crude oil imports up significantly this week, and with oil on loan from the Strategic Petroleum Reserve now being received at some refineries, many of these refineries should be receiving a boost in available crude oil and, hopefully, will be able to run at higher rates this week.  However, as noted last week, some refineries are also now curtailing operations to perform routine maintenance.  This often happens in late September and October as refiners prepare for the upcoming winter season.  Thus, it seems unlikely that crude oil inputs will average 16 million barrels per day (as it last did for the week ending September 10) any time in the next several weeks.  However, refinery inputs this week should increase from last week’s low level, as refiners begin to increase their throughput in the aftermath of Hurricane Ivan.

In the meantime, Hurricane Ivan’s impact is reflected in the latest data on petroleum product inventories.  Distillate fuel inventories, which typically would be increasing an average of 1 million barrels each week in September, have actually dropped by 2.8 million barrels over the last two weeks.  Gasoline inventories, which would be expected to increase by about 1.4 million barrels each week during September, have declined by 3.6 million barrels over the last two weeks.  These counter-seasonal stockpile movements are clearly related to the drop in refinery production, and have brought national inventory levels for both products from the upper half of the average range to the lower half of the average range.  While any improvement in refinery throughput should help product inventories in coming weeks, how much they improve will depend on how quickly crude oil refinery inputs rebound from the impact of Hurricane Ivan and the fall maintenance period.  But the impact will likely be felt in retail prices for gasoline, diesel fuel, and heating oil, as prices adjust to higher crude oil prices and reduced supplies from refineries.  Other than a two-day period in early February 2000, the New York spot heating oil price is already at record levels (not adjusted for inflation) and the U.S. average gasoline spot price is just 12 cents per gallon below the peak set in mid-May earlier this year. How much and how long retail prices will climb is still uncertain, but this is not a good start to the upcoming winter season for consumers in what was already expected to be a period in which retail prices would be high.

Retail Gasoline Prices Gain 5 Cents, Diesel Up 10 Cents
The U.S. average retail price for regular gasoline rose by 5.1 cents per gallon from the previous week to reach 191.7 cents per gallon as of September 27, 32.6 cents higher than this time last year. Prices were up throughout the country, with the hurricane-wracked Gulf Coast region seeing the largest increase of 6.7 cents to 182.4 cents per gallon. West Coast prices gained 3.2 cents to reach 206.6 cents per gallon, which is 20.5 cents higher than last year. Prices in California also grew 3.7 cents to 209.4 cents per gallon, which is 18.2 cents higher than this time last year.

Retail diesel fuel prices rose by 10.0 cents this week to a national average of 201.2 cents per gallon, which is 58.3 cents per gallon higher than a year ago. Retail diesel prices are reflecting not only the rise in crude oil prices, but also pressure from strong demand and high spot prices for heating oil.  Prices were up throughout the country, with the East Coast seeing the largest increase of 11.4 cents to reach 201.9 cents per gallon. California prices remained the highest, rising 8.4 cents to average 223.6 cents per gallon.

Propane Inventories Surge
The recent flotilla of propane imports into the U.S. Gulf Coast contributed to last week’s surge in inventories that totaled 3.5 million barrels, the highest weekly gain reported so far during the 2004 summer build season.  Propane inventories ended the week of September 24, 2004 at an estimated 67.3 million barrels, a level that is approaching the upper boundary of the average range for this time of year. The effects of Hurricane Ivan apparently had little impact on propane supply components last week as refinery production remained relatively intact while propane imports continued to be offloaded in large volumes in the Gulf Coast region.  Gulf Coast inventories reported the largest weekly increase, 2.9 million barrels, pushing inventories in that region above the average range for the first time since this time last fall.  Last week, inventories in the East Coast pushed higher for the first time in several weeks with a 0.4-million-barrel gain, while inventories in the Midwest and the combined Rocky Mountain/West Coast regions remained flat during this same period.  Propylene non-fuel use inventories also remained flat last week at 2.2 million barrels, accounting for a slightly smaller 3.3 percent share of total propane/propylene inventories.

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