Released on December 1, 2004
(Next Release on December 8, 2004)

All Streaks Must End, Right?
After 74 consecutive wins and more than $2.5 million in prize money, Ken Jennings finally lost on Jeopardy. Even Cal Ripken, Jr., the famous Baltimore Oriole shortstop and third baseman, finally sat out a game after playing in 2,632 consecutive games. With crude oil and petroleum product prices generally declining in November, many oil analysts are wondering if the increase we have seen in oil prices in 2004 is another streak that may be ending.

While it is true that oil inventories have been increasing lately, thus putting some downward pressure on prices, EIA still thinks that the price of West Texas Intermediate crude oil is likely to average between $45 and $50 per barrel during the winter period. Capacity constraints across all aspects of the oil industry should keep prices from falling much below current levels over the next few months. EIA estimates that spare global oil production capacity remains at a relatively low 1 million barrels per day. Although Saudi Arabia has recently announced plans to increase its production capacity, it will take time and for the next few months at least, spare global oil production capacity will remain minimal. With little spare production capacity available to respond to potential supply disruptions, markets will continue to factor this in, putting upward pressure on prices.

Downstream capacity is also being stretched further than it has in recent years. While U.S. refinery utilization routinely exceeds 90 percent, utilization rates in Europe and Asia have grown to around 90 percent or more. Additionally, with increases in oil production seen mostly in heavier and more sour crude oils, while at the same time, product demand growth is concentrated in light products, a growing mismatch between the incremental supply of crude oil and increasing product requirements is adding strain to the refinery system.

Finally, tight global tanker capacity has also put increased pressure on prices as tanker rates have increased recently. With Asian countries becoming more dependent on Middle East, and even West African, crude oils, the average length of a tanker voyage is increasing, which, in essence, is adding to the demand for tankers. As a result, transportation costs have increased, which has helped crude oil prices remain relatively high.

So while some streaks, as amazing as they are, come to an end, some unbelievable streaks continue. Earlier this week, Brett Favre started his 200th consecutive game as a quarterback in the National Football League. This is 84 games more than the previous record holder (Ron Jaworski for you trivia buffs), yet barring retirement, it appears that the end of Brett Favre’s streak is not yet in sight. While high oil prices may not show this type of longevity, it does appear likely, despite the inventory increases we have seen in recent weeks that relatively high oil prices will persist, at least throughout the upcoming winter season, unless the winter proves to be unusually mild.

Mild Temperatures Provide Little Relief for Sagging Heating Fuel Inventories
Data reported by the National Oceanic and Atmospheric Administration (NOAA) for the four-week period ending November 27 show temperatures in the predominantly heating oil and propane consuming regions of the New England, Central Atlantic and Midwest were relatively mild, presumably implying some buoyancy to these heating fuel inventories over this period. Since November weather is not typically severe, significant deviations from normal temperatures can result in some impact on heating fuel inventories by either inducing continued stockbuilding under mild weather conditions, or conversely, stockdraws under a scenario of colder-than-normal temperatures. Yet, despite mild weather, heating oil inventories (high-sulfur distillate) in the East Coast increased by just 0.2 million barrels to 30.8 million barrels between October 29 and November 26, putting them nearly 18 percent below the November 30, 2003 level. Moreover, this level also represents the East Coast’s lowest heating oil inventories for the end of November since 2000. The conventional wisdom of some industry observers was that refiners would produce significantly more heating oil prior to the arrival of much colder winter weather, and if weather was mild, inventories would increase significantly. However, demand was sufficient to keep heating oil inventories relatively flat.

Similarly, Midwest propane inventories fell during the month, moving lower by an above-average 1.4 million barrels that left inventories at an 8-year low of 21.1 million barrels for the end of November. As of November 26, Midwest inventories of propane stood 11 percent below the November 30, 2003 level. Although propane stocks are inevitably drawn down during November, the volume of the stockdraw is generally determined by the severity of weather during the month. But relatively mild November temperatures were evidently not enough to stem the large flow of propane from Midwest storage facilities during this period. Accordingly, even with the prospect of extended mild weather, little hope remains for significant expansion in heating oil and propane inventory safety nets before the winter heating season begins.

Residential Heating Fuel Prices Increase
Residential heating oil prices increased for the period ending November 29, 2004. The average residential heating oil price increased by 0.5 cent from last week to reach 203.0 cents per gallon, an increase of 61.7 cents from this time last year. Wholesale heating oil prices decreased 4.2 cents to reach 147.6 cents per gallon, an increase of 61.4 cents compared to the same period last year.

The average residential propane price increased 1.6 cents, from 168.8 cents to 170.4 cents per gallon. This was an increase of 36.3 cents over the 134.1 cents per gallon average for this same time last year. Wholesale propane prices increased 1.8 cents per gallon, from 96.7 to 98.5 cents per gallon. This was a gain of 35.6 cents from the comparable price for the same time last year.

Retail Gasoline Prices Decrease Throughout Most of the Country
The U.S. average retail price for regular gasoline decreased this week by 0.3 cent per gallon from the previous week to reach 194.5 cents per gallon as of November 29, 45.5 cents higher than this time last year. This is the fifth time in the last six weeks that prices have decreased and is the lowest weekly average retail price since October 4. Prices were down throughout most of the country, with the West Coast region seeing the largest decrease of 2.6 cents to 215.7 cents per gallon. Retail prices on the East Coast fell 0.7 cent to 194.2 cents per gallon, which is 44.4 cents higher than last year. Prices in California fell 2.7 cents to 223.6 cents per gallon, which is 55.6 cents higher than this time last year. The Midwest was the only region that saw a price increase, rising 1.3 cents to 188.4 cents per gallon.

Retail diesel fuel prices were flat at 211.6 cents per gallon. Prices were mixed throughout the country, with the East Coast seeing a decrease of 0.2 cent to 214.1 cents per gallon, while the Midwest saw an increase of 0.3 cent to 208.6 cents per gallon. California prices remained the highest, averaging 228.7 cents per gallon, despite falling 1.2 cents during the past week.

November Draw on Propane Above Average
Primary stockholders of propane withdrew inventory at a higher-than-average rate during November, with inventories declining by 4.8 million barrels to end the week of November 26 at an estimated 62.7 million barrels. This draw significantly exceeds the most recent 5-year average draw during November of nearly 1.8 million barrels. Although temperatures were relatively mild throughout many of the major propane heating fuel regions during the month, apparently strong demand within other consuming sectors more than offset the effects of the above average temperatures. Last week, U.S. inventories of propane moved lower by 1.0 million barrels that reflected declines in the East Coast and Gulf Coast of 0.1 million barrels and 2.1 million barrels, respectively, while an offsetting gain was recorded in the Midwest that totaled 1.0 million barrels. The combined Rocky Mountain/West Coast region remained unchanged last week at 2.9 million barrels. Propylene non-fuel use inventories also remained unchanged last week at 2.6 million barrels, accounting for roughly the same 4.1 percent of total propane/propylene inventories as the prior week.

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