Released on November 17, 2004
(Next Release on November 24, 2004)

November – A Telling Month
At the beginning of November, this country didn’t know who the next President was going to be, when the threat level for selected financial institutions in New York and Washington would return to Code Yellow, or even the nickname of the Washington baseball team. Yet by the end of the month, all of these questions will have been answered. Likewise, we should know more about the status of oil markets this winter at the end of the month than we did at the beginning.

As November began, effects from Hurricane Ivan and refinery maintenance schedules had helped crude oil inventories to build several weeks in a row, just as distillate fuel stocks were declining several weeks in a row. However, by the end of November, several factors influencing oil markets that were unknown at the beginning of the month should make themselves known.

First, with most refineries coming back on-stream following their fall maintenance, we will likely see distillate fuel inventories begin to build sometime this month, although they continued to decline last week, even as refineries increased their crude oil input. Typically, distillate fuel inventories tend to increase by nearly 5 million barrels during November, largely due to refineries making more product as they return from maintenance. However, this year, it appears that maintenance continued into the early part of November, thus reducing production of distillate fuel that would have otherwise occurred. This kept distillate fuel inventories declining into the first part of November, and they continued to decline last week, even as refinery utilization increased to 93.5 percent. However, with refinery maintenance mostly completed at this point, distillate fuel inventories may begin to build in the latter part of November. Thus, by the end of the month, we should have a better idea of how low distillate fuel inventories will drop and, depending on when they begin to increase, whether there is enough time for them to build sufficiently before the onslaught of harsh winter weather. With distillate fuel inventories relatively low in Europe, making less available for export to the United States should a cold snap require increased supply, more of that extra supply may need to come from storage than would typically be the case. If so, the level of distillate fuel inventories heading into the peak winter period will be a critical factor in determining how much pressure will be put on heating oil prices this winter. By the end of November, we should have a better idea as to whether distillate fuel inventories will build to a more comfortable level prior to our reliance on them to augment supplies during the winter.

Another important oil market factor that we should know much more about by the end of November is the trend in crude oil prices. The price of West Texas Intermediate (WTI) crude oil has declined by about $9 per barrel since the latter part of October, and should prices continue to drop at such a steep pace, they could be below $40 per barrel by the end of the month. Were this the case, one would have to believe that, barring a major supply disruption or a long-lasting and very broad cold snap, the price of WTI would not likely approach $50 per barrel anytime soon. However, should WTI prices stop declining, or perhaps even begin to increase, this might signal that oil market fundamentals are still very tight and that prices might once again head towards $50 per barrel. The next few weeks should help clarify the current crude oil price trend and what it might portend for the upcoming winter.

Of course, oil market developments this winter could be significantly influenced by a number of factors that will still be largely unknown as we move into December, with weather and the possibility of unanticipated disruptions chief among them. Yet, by the end of this month, we should have a much clearer picture about the situation of oil markets this upcoming winter than we did at its beginning.

Residential Heating Fuel Prices Flatten
Residential heating oil prices decreased for the period ending November 15, 2004. The average residential heating oil price decreased by 1.1 cents from last week to reach 201.7 cents per gallon, an increase of 61.7 cents from this time last year. Wholesale heating oil prices decreased 0.5 cent to reach 139.9 cents per gallon, an increase of 49.1 cents from the November 17, 2003 price of 90.8 cents per gallon.

The average residential propane price relatively flat at 169.0 cents per gallon. This was an increase of 36.0 cents over the 133.0 cents per gallon average for this same time last year. Wholesale propane prices decreased 2.7 cents per gallon, from 98.3 to 95.6 cents per gallon. This was a gain of 32.0 cents from the November 17 , 2003 price of 63.6 cents per gallon.

Retail Gasoline Prices Fall by 3 Cents
The U.S. average retail price for regular gasoline decreased this week by 3.2 cents per gallon from the previous week to reach 196.9 cents per gallon as of November 15, 47.2 cents higher than this time last year. This is the third time in four weeks that prices have decreased and the lowest weekly retail price since October 4. Prices were down across the country, with the Midwest region seeing the largest decrease of 4.8 cents to 187.6 cents per gallon. Retail prices on the East Coast fell 2.4 cents to 197.3 cents per gallon, which is 47.2 cents higher than last year. Prices in California fell 3.0 cents to 231.1 cents per gallon, which is 63.0 cents higher than this time last year.

Retail diesel fuel prices also dropped, falling by 3.1 cents to 213.2 cents per gallon. Prices were down throughout the country, with the West Coast seeing a decrease of 5.0 cents to reach 227.4 cents per gallon. California prices remained the highest, averaging 233.6 cents per gallon, despite falling 5.0 cents during the past week.

Propane Stockholders Report Robust Weekly Stockdraw
U.S. stockholders of propane reported a robust stockdraw last week that measured 2.3 million barrels, lowering the nation’s primary stockpile of propane to an estimated 64.8 million barrels as of November 12, 2004. Last week’s relatively sharp inventory draw most likely reflected a continuation of strong crop-drying demand and strong heating demand during the season’s first wave of cold temperatures that swept through the Midwest and East Coast last week. Near the midpoint of the month, the November stockdraw so far has totaled about 2.7 million barrels, a level well above the 1.8-million-barrel draw averaged over the most recent 5-year period. The early November stockdraw appears likely to have set the stage for an above average draw for the month, although U.S. inventories continue along a path at the upper limit of the normal range for this time of year. Regional draws were confined to the Midwest and Gulf Coast areas with declines of 1.2 million barrels and 1.3 million barrels, respectively. In the East Coast, inventories rose by 0.2 million barrels, while the combined Rocky Mountain/West Coast regions remained flat during this same period. Propylene non-fuel use inventories declined last week by 0.1 million barrels, but accounted for the same 3.9 percent of total propane/propylene inventories as the prior week.

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