Released on January 26, 2005
(Next Release on February 2, 2005)

Back to the Fifties?
On January 25, the near-month West Texas Intermediate (WTI) futures price got as close as 25 cents to reaching $50 per barrel before settling the day at $49.64 per barrel. Of course, this has led some to speculate as to whether the near-month WTI futures price could again be sustained above $50 per barrel in the coming days. The last time the near-month price settled above $50 per barrel was on November 3, 2004, which ended a string in which the settled price finished above $50 in 22 out of 24 trading days (between October 1 and November 3). It was during this stretch that the near-month price settled as high as $55.17 on two days (October 22 and October 26), the highest near-month futures price ever recorded (in nominal dollars). Are we about to enter another stretch of prices similar to what we saw last autumn?

Absent significant new supply disruptions, this is unlikely to happen for a number of reasons. First, much of the rise in prices seen lately has been due to the cold weather recently experienced in the Midwest, and the northern half of the East Coast. This has increased the demand for heating oil, particularly in the Central Atlantic and New England regions, thus increasing the demand for crude oil. While this cold weather did result in a drop of more than 2 million barrels in heating oil inventories last week, with only six or so more weeks of potentially severe winter weather left, concerns about the adequacy of distillate fuel supplies should dissipate relatively quickly. Secondly, crude oil inventories are in the upper half of the average range, providing additional flexibility should crude oil supplies become more constricted. While the market may remain concerned about the quantity of Iraqi exports that may be available in the near term, concerns about crude oil production in the Gulf of Mexico (supplies are still reduced from the aftermath of Hurricane Ivan) and the North Sea (resulting from a gas leak discovered below a platform off Norway) are likely to lessen as both of these situations continue to improve. Finally, as refineries begin their winter/spring turnaround activities and reduce their inputs, crude oil inventories could continue to build, especially if imports continue to average well above 10 million barrels per day. Of course, this could result in draws of both gasoline and distillate fuel inventories. While this may provide enough pressure to keep crude oil and product prices near current levels in the next few weeks, it is unlikely to be enough to sustain the WTI price above $50 per barrel without additional supply disruptions cropping up.

U.S. Average Retail Gasoline Price Gains 3.4 Cents
The U.S. average retail price for regular gasoline increased this week by 3.4 cents per gallon from the previous week to reach 185.3 cents per gallon as of January 24, 23.1 cents higher than this time last year. This is the third week in a row that prices have risen, and the first time since December 6 that prices have been this high. Prices were up throughout the country, with the Gulf Coast and Midwest both seeing the largest gains of 4.3 cents to 178.9 cents per gallon and 184.7 cents per gallon, respectively. Retail prices on the East Coast gained 2.7 cents to 186.0 cents per gallon, which is 23.1 cents higher than last year. Prices in California gained 2.7 cents to 195.9 cents per gallon. West Coast prices also gained 2.7 cents to 191.8 cents per gallon, which is 21.5 cents higher than this time last year.

Retail diesel fuel prices rose 0.7 cent last week to 195.9 cents per gallon. This is the second week in a row that prices have increased. Prices were up throughout the country, with the West Coast seeing the largest regional increase of 2.6 cents to 202.7 cents per gallon. Prices in the Midwest stayed flat at 192.8 cents per gallon. East Coast prices gained 0.5 cent to reach 201.4 cents per gallon, while prices in New England stayed the highest in the nation, rising 1.2 cents to 218.0 cents per gallon. The average price in California increased by 4.5 cents to 206.8 cents per gallon, which is 38.8 cents higher than this time last year.

Residential Heating Fuel Prices Rise
Residential heating oil prices increased for the period ending January 24, 2005. The average residential heating oil price increased by 2.6 cents from last week to reach 199.0 cents per gallon, an increase of 36.8 cents from this time last year. Wholesale heating oil prices increased 3.8 cents to reach 142.8 cents per gallon, an increase of 37.7 cents compared to the same period last year.

The average residential propane price increased 0.6 cent, from 172.5 cents to 173.1 cents per gallon. This was an increase of 19.5 cents over the 153.6 cents per gallon average for this same time last year. Wholesale propane prices decreased 0.3 cent per gallon, from 83.4 cents to 83.1 cents per gallon, a gain of 3.0 cents compared to the same period last year.

Propane Inventory Situation at Mid-Season
As propane markets reach the mid-heating-season mark, winter weather finally kicked up its heels last week, dumping near-record snow in some parts of the Northeast while blanketing other areas in the Midwest and East Coast with heavy snow and arctic-cold temperatures. Although temperatures across most of the major propane-consuming regions during the first half of the winter heating season stayed above normal, weather during the second half of the heating season may follow a totally different pattern if last week’s severe weather is any indication of things to come. Regardless, U.S. propane inventories at this point appear relatively adequate heading into the final leg of the heating season, compared with recent historical trends.

Last week, U.S. inventories of propane posted their largest drop of the season with a 4.0 million-barrel stockdraw, leaving inventories as of January 21, 2005 at an estimated 45.0 million barrels. This level remains more than 8 million barrels above the same week last year, in addition to tracking at the upper boundary of the average range for this period. Regional inventories declined in all regions with the Midwest down by 1.2 million barrels, East Coast inventories lower by 0.6 million barrels, while Gulf Coast inventories declined by 1.9 during this same period. In the Midwest region, inventories continue to track within the average range for this time of year, while East Coast and Gulf Coast inventories remain either slightly above or near the upper boundary of the normal range during this same period (see Figure 7 in the Weekly Petroleum Status Report ). Last week, propylene non-fuel use inventories remained unchanged at 3.5 million barrels but accounted for a larger 7.8 percent share of total propane/propylene inventories, compared with the prior week.

Assuming U.S. inventories of propane decline by the most recent 5-year period average between now and the end of March, they would decline by 8.7 million barrels over this period, and by the end of March 2005, inventories would end the heating season at about 36 million barrels. This compares with the most recent 5-year average of 27.2 million barrels. On a regional basis, inventories also appear adequate for the remainder of the heating season, particularly in the Midwest, where the largest concentrations of propane heating customers are located. Similarly, if Midwest inventories for the remainder of the heating season follow 5-year average trends, inventories would end the heating season at about 9.8 million barrels, above the 5-year average level for March of 8.7 million barrels. Even under a scenario of sustained frigid temperatures lasting several weeks, U.S. and regional inventories would be expected to remain above recent year lows that saw U.S. inventories hit 21.9 million barrels by the end of March 2003, and Midwest inventories as low as 6.1 million barrels by the end of March 2001.

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