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Released on January 12, 2005
(Next Release on January 19, 2005 at 5 PM)

Wild Cards
While three of the four National Football League wild card teams won their opening round playoff games last weekend, few football experts expect any of them to make it to the Super Bowl. However, there are “wild cards” in oil markets that are expected to shape oil prices for the remainder of this month, if not throughout the rest of the winter. Specifically, these “wild cards” are: weather, the elections (and overall security situation in Iraq), and the upcoming OPEC meeting.

It would be very difficult to overstate the impact weather may have on oil markets this month and perhaps for the remainder of the winter season. Many times in recent trading sessions, analysts have cited weather as a key force in driving that day’s oil prices either up or down. Most recently, on Monday, January 10, the near-month futures price for heating oil surged by almost 8 cents per gallon after a private weather forecasting company predicted much colder weather in the Northeast this coming weekend, before falling back by the end of the trading session. This example highlights the impact weather has on the near-term price of heating oil, as well as crude oil. Warmer-than-normal weather thus far this winter has enabled distillate fuel inventories to climb back above the lower end of the normal range. Should weather turn much colder for an extended period, this might cause these inventories to be drawn down once again below their normal range, thus putting upward pressure on prices.

Another “wild card” influencing oil markets this month is the upcoming elections in Iraq. Insurgents inside Iraq appear to have stepped up their attacks recently in an attempt to postpone, or even cancel elections scheduled for January 30. At the same time, oil pipelines and other infrastructure in Iraq continue to be attacked with oil exports being cut off from northern Iraq and reduced from the south as well in recent weeks. At the very least, the attacks may cause some buyers to delay their purchases until after the elections, hoping that the situation will improve. Regardless, Iraq remains a key “wild card” affecting oil markets this month.

The upcoming OPEC ministerial meeting, scheduled for January 30, the same day as the Iraqi elections, is a third “wild card.” Some OPEC oil ministers continue to argue that oil markets are oversupplied and some analysts have concluded that OPEC will cut its production quotas soon, if not at this next meeting, then perhaps at the group’s next meeting in March. Some traders and analysts believe that OPEC members will need to cut production to keep oil prices from falling precipitously, and the anticipation of OPEC’s meeting has factored into oil prices recently and is likely to continue to be a factor for the next several weeks. Of course, what ultimately matters to oil markets is what key producers do, rather than what OPEC or its members say or do not say at the organization’s periodic meetings, since words and actions do not always correspond closely.

While over the next year or so it will be the global balance between supply and demand that will shape the trend of prices over that period, how each of these three “wild cards” evolves over time will have a significant impact on the price of oil for the remainder of this month and perhaps through the winter as well.

U.S. Average Retail Gasoline Price Rises 1.5 Cents
The U.S. average retail price for regular gasoline increased this week by 1.5 cents per gallon from the previous week to reach 179.3 cents per gallon as of January 10, 23.3 cents higher than this time last year. This is the first time in 10 weeks that prices have risen. Prices were mixed throughout the country, with the Midwest driving the national increase with a gain of 5.4 cents to 177.2 cents per gallon. Retail prices on the Gulf Coast gained 2.8 cents to 169.9 cents per gallon, which is 21.1 cents higher than last year. Prices in California fell 5.0 cents to 193.2 cents per gallon. West Coast prices also fell by 4.1 cents to 188.9 cents per gallon, which is 24.4 cents higher than this time last year.

Retail diesel fuel prices fell 2.3 cents last week to 193.4 cents per gallon. This is the tenth time in eleven weeks that prices have fallen or stayed flat. Prices were down throughout the country, with the Rocky Mountains seeing the largest decrease of 5.7 cents to 187.7 cents per gallon, while prices on the East Coast lost 2.6 cents to 199.9 cents per gallon. This marks the first time East Coast prices have been below the $2 mark since September 20, 2004. Prices in New England stayed the highest in the nation, falling 1.7 cents to 216.3 cents per gallon. The average price in California decreased by 4.9 cents to 201.4 cents per gallon, while prices along the West Coast fell 3.8 cents to 197.3 cents per gallon. West Coast prices have not been this low since June 28, 2004.

Residential Heating Fuel Prices Decrease Slightly
Residential heating oil prices decreased for the period ending January 10, 2005. The average residential heating oil price decreased by 0.7 cent from last week to reach 194.4 cents per gallon, an increase of 38.2 cents from this time last year. Wholesale heating oil prices increased 3.5 cents to reach 131.7 cents per gallon, an increase of 29.6 cents compared to the same period last year.

The average residential propane price decreased 0.2 cent, from 173.0 cents to 172.8 cents per gallon. This was an increase of 23.1 cents over the 149.7 cents per gallon average for this same time last year. Wholesale propane prices decreased 4.0 cents per gallon, from 84.9 to 80.9 cents per gallon, a drop of 4.3 cents compared to the same period last year.

Propane Inventories Sharply Lower
The weekly draw on U.S. inventories of propane measured a hefty 3.0 million barrels last week, moving primary inventories down to an estimated 52.4 million barrels as of January 7, 2005. This follows a week of mixed weather patterns across the country that saw severe rain and snow in many areas of the West, while at the same time the East Coast was basking in unseasonably warm temperatures. Inventories in the Midwest drifted lower by only 1.1 million barrels last week despite severe winter storms in some areas during the last few weeks, while Gulf Coast inventories reported a much larger drop of 2.0 million barrels during this same time. Inventories on the East Coast inched slightly higher last week by 0.1 million barrels, reflecting above-normal temperatures, while inventories in the combined Rocky Mountain/West Coast region remained unchanged at 2.0 million barrels last week. Propylene non-fuel use inventories dropped 0.4 million barrels last week to 2.8 million barrels, accounting for a 5.3 percent share of total propane/propylene inventories, compared with the prior week’s 5.8 percent share.

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Retail Prices (Cents Per Gallon) Retail Data Changes From Retail Data Changes From 01/10/05 Week Year 01/10/05 Week Year Gasoline 179.3 1.5 23.3 Heating Oil 194.4 -0.7 38.2 Diesel Fuel 193.4 -2.3 38.3 Propane 172.8 -0.2 23.1

Spot Prices (Cents Per Gallon) Spot Data Changes From 01/07/05 Week Year Crude Oil WTI 45.32 NA 10.94 Gasoline (NY) 120.4 NA 17.5 Diesel Fuel (NY) 127.2 NA 26.0 Heating Oil (NY) 125.6 NA 24.5 Propane Gulf Coast 72.0 NA -8.1 Note: Crude Oil WTI Price in Dollars per Barrel.

Stocks (Million Barrels) Stocks Data Changes From Stocks Data Changes From 01/07/05 Week Year 01/07/05 Week Year Crude Oil 288.8 -3.0 24.8 Distillate 123.0 1.9 -15.3 Gasoline 215.3 1.0 6.9 Propane 52.439 -2.983 5.693