Released on December 29, 2004
(Next Release on January 5, 2005)

Best of TWIP
In the tradition of recording studios systematically bundling the greatest hits of musical artists and releasing special CDs (or record albums in the good old days), with titles commonly referring to the artist’s name, such as “Best of (name of artist),” the current issue of “This Week In Petroleum” (TWIP) follows in the footsteps of that tradition with the greatest petroleum stories (hits) covered during 2004.

The year 2004 may be characterized as a year of extremes, which witnessed record prices for crude oil and gasoline, a severe hurricane season, and world energy markets that were roiled by unexpectedly high oil demand in China and continued volatility in the Middle East. West Texas Intermediate (WTI) crude oil prices for the near-term futures contract on the New York Mercantile Exchange, the benchmark crude oil for the United States, soared and closed at an all-time record of more than $55 per barrel on October 22, a level about two-thirds above the $33.78-per-barrel price of crude oil at the beginning of the year. Since the October peak, WTI crude oil prices have fluctuated downward to about $42 per barrel as of December 28, 2004 (see November 10 issue, A Temporary Phenomenon or Here to Stay? ). Although the record high crude oil price this year can be attributed to a number of factors, the most influential of those were: low U.S. crude oil inventories held in commercial storage, particularly during the early months of the year; uncertainty about the flow of Iraqi oil exports in the face of the high level of turmoil within that country; the damage inflicted on Gulf Coast and offshore oil installations following hurricanes Charley, Frances, and Ivan; unexpectedly strong world oil demand, particularly in China; and capacity constraints (upstream, downstream, and transportation). Moreover, Venezuelan political instability, Nigerian labor strikes, and internal strife between the Russian government and oil giant Yukos also contributed to keep crude oil and other petroleum prices higher this year.

Rising crude oil prices also pushed most petroleum product prices higher during 2004, including retail regular gasoline which set a record U. S. average of 206.4 cents per gallon (unadjusted for inflation) on May 24th. The U. S. average regular gasoline price ended 2004 about 19 percent higher than at the beginning of the year, rising from 151.0 cents per gallon in early January to 179.1 cents per gallon by December 27, 2004. Another noteworthy item during 2004 was record distillate fuel demand, which, spurred by nearly unprecedented demand for on-highway diesel fuel, measured nearly 4.1 million barrels per day. Even high diesel fuel prices, reaching a record (unadjusted for inflation) 221.2 cents per gallon on October 25, 2004, were not sufficient to temper strong demand that was in part fueled by a still strong U.S. economy. Diesel fuel prices have exceeded the price of regular unleaded gasoline since late August of this year (see November 3 issue, Gasoline vs. Diesel Fuel).

This year also marked one of the most severe hurricane seasons in many years with three back-to-back storms pummeling large sections of Florida, Alabama and Mississippi. The hurricanes caused major disruptions to Gulf of Mexico crude oil production, in addition to causing damage to port facilities, oil platforms, and refineries located near the Gulf Coast. The hurricanes also delayed the offloading of crude oil imports in the Gulf region, compounding the already low U.S. crude oil supply situation at that time (see September 22 issue, The Oil Market Impact from Ivan ). Last but not least, the December deep-freeze that sent arctic temperatures roaring across major portions of the nation during the last days of 2004 caused some petroleum market analysts to debate the adequacy of heating fuel inventories for the upcoming winter heating season (see December 15 issue, Baby, It’s Cold Outside ). With world crude oil markets expected to remain tight well into next year, along with the possibility of further Middle East turmoil, and the chance of severe winter weather in early 2005, the “Hit Parade” of petroleum stories will certainly continue to be covered by TWIP in the coming year.

Retail Gasoline Prices Fall Again, Diesel Fuel Increases Slightly
The U.S. average retail price for regular gasoline decreased this week by 2.4 cents per gallon from the previous week to reach 179.1 cents per gallon as of December 27, 31.3 cents higher than this time last year. This is the eighth week in a row, and the ninth time in ten weeks, that prices have dropped. Prices were down throughout the country, with the West Coast region seeing the largest decrease, falling 3.7 cents to 195.6 cents per gallon. Retail prices in the Midwest fell 2.4 cents to 170.4 cents per gallon, which is 26.4 cents higher than last year. Prices in California fell 3.9 cents to 201.0 cents per gallon, which is 41.5 cents higher than this time last year.

Retail diesel fuel prices rose 0.3 cent last week to 198.7 cents per gallon. Price changes were mixed throughout the country, with the East Coast seeing a decrease of 0.7 cent to 204.5 cents per gallon, while prices in the Midwest rose 1.5 cents to 195.9 cents per gallon. California prices rose 1.0 cent to 209.7 cents per gallon. Prices in New England stayed the highest in the nation, falling just 0.3 cent to hover at 219.6 cents per gallon.

Residential Heating Fuel Prices Decrease
Residential heating oil prices decreased for the period ending December 27, 2004. The average residential heating oil price decreased by 1.6 cents from the previous week to reach 197.7 cents per gallon, an increase of 48.6 cents from this time last year. Wholesale heating oil prices decreased 9.8 cents to reach 135.6 cents per gallon, an increase of 42.6 cents compared to the same period last year.

The average residential propane price increased 1.1 cents, from 171.8 cents to 172.9 cents per gallon. This was an increase of 31.1 cents over the 141.8 cents per gallon average for this same time last year. Wholesale propane prices decreased 3.0 cents per gallon, from 92.6 to 89.6 cents per gallon. This was a gain of 18.9 cents from the December 29, 2003 price of 70.7 cents per gallon.

Propane Inventories Post Seasonal Declines
U.S inventories of propane continued to post a seasonal decline last week with a 2.1-million-barrel drop that moved inventories lower to an estimated 56.7 million barrels for week ending December 24, 2004. For the first three weeks of December, weekly stockdraws have continued on a path just below the normal 5-year average for this month, with inventories remaining near the high end of the normal range for this time year. Midwest inventories were sharply lower last week with a 1.3-million-barrel decline that reflected cold weather in the region, followed by the Gulf Coast that reported a weekly drop of 0.6 million barrels. During this same period, East Coast inventories remained unchanged while the combined Rocky Mountain/West Coast regions reported inventories 0.1 million barrels lower. East Coast and Gulf Coast inventories remain at or above the upper end of their respective normal ranges last week, while the Midwest continues to track near the lower end of the normal range. Propylene non-fuel use inventories gained 1.0 million barrels last week to 3.4 million barrels, a level accounting for 6 percent of total propane/propylene inventories, compared with the prior week’s 4.1 percent share.

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