Released on June 2, 2005
(Next Release on June 8, 2005)

What You See Is Not All There Is
The hot topic in Washington, DC in recent days has been the revelation that Mark Felt, who was second-in-command at the FBI, was “Deep Throat,” the famous unnamed source who helped the Washington Post break the Watergate story. Without information gleaned from this mysterious source, it is unclear how far the Washington Post investigation into the cover-up of the break-in at the Watergate hotel would have been able to go. What is indisputable is that the information obtained through the use of “Deep Throat” added to the clarity about the events surrounding the Watergate break-in.

Without a “Deep Throat” to guide them, oil market analysts focus on the limited information that is available. Chief among these sources are the weekly data on oil supply and demand for the United States, the world’s largest oil consumer, issued by the Energy Information Administration and the American Petroleum Institute. That information, along with weekly data on Japanese oil inventories, imports, exports, and refinery operations prepared by the Petroleum Association of Japan, provides invaluable insight into global oil markets, but it by no means provides a complete view of the overall story. Important data for other parts of the world are simply unavailable in a timely fashion. While many oil market analysts may have their own sources of additional fragmentary information, there is no overarching data source that can be regularly relied upon. What oil market analysts and the public are left with are analyses based on two-month-old or older data, plus anecdotal evidence gleaned from various reports. For a product like oil that is traded on a global basis and closely linked to world economic activity, the lack of timely data for much of the world makes it difficult to fully assess current market conditions.

There is much information that oil analysts and traders would like to have available on a timelier basis. How much oil is OPEC actually currently producing? How much oil did China consume last week? How much oil did Russia actually produce and export last month? What is current refinery utilization in Europe or Asia? These are examples of the important questions that can not be answered definitively with available data. Even U.S. refinery information is sometimes hard to gather. When a refinery or refinery unit is shut down, the refinery is often careful about the information it releases so as not to put their company at an economic disadvantage to their competitors. While electric utilities must fill out a federal form when they experience a power system incident or disturbance, U.S. refineries are only required to report their total refinery input and output on a weekly basis. Outages are heard about primarily via press reports. Information on OPEC production or current Chinese oil consumption is even less clear. While many organizations report what they think OPEC produced in the most recent month, most of this information is compiled using individual analysts’ judgements. There is no independent organization that collects forms from OPEC producers on how much they produced last week, last month, or last year.

The lack of accurate and timely information on Chinese oil demand during 2004 is mentioned almost universally by oil market analysts as one of the main reasons oil prices have risen from the low $30s in early 2004 to the $50s currently. Much of this demand growth came as a surprise to markets. Some analysts have attempted to infer China’s oil demand by adding information on Chinese oil imports to estimates of the country’s oil production. But, this calculation is not always a reliable indicator, as it appears that China’s imports are very cyclical. This leads to overestimation of Chinese demand when they are buying extra volumes of crude oil (in order to build inventories) and underestimation when they are buying less (because they are drawing down inventories). Without information on China’s inventory behavior, estimates of current oil demand in China are, at best, educated guesses.

With so little world oil market information available on a timely basis, it is no wonder that the weekly releases of U.S. oil data at 10:30 a.m. every Wednesday (or Thursday on a holiday week, such as this week) hold so much sway with oil market analysts and traders. This interest has even spawned derivative financial instruments in which participants can hedge on the change in U.S. crude oil inventories from week to week. While these weekly data do provide a good view of oil markets in a country that consumes roughly a quarter of the world’s oil, one wonders how much different oil markets and prices would be if weekly oil data were available in other parts of the world.

U.S. Average Retail Gasoline Price Decreases by 2.8 Cents
The U.S. average retail price for regular gasoline decreased this week by 2.8 cents from the previous week to 209.7 cents per gallon as of May 30, 4.6 cents higher than this time last year. This is the seventh week in a row that prices have decreased, and the lowest prices have been since March 14. Prices were down throughout the country, with the West Coast seeing the largest regional decrease of 4.2 cents to reach 235.7 cents per gallon. East Coast prices fell by 2.4 cents to 209.4 cents per gallon while Midwest prices fell 2.7 cents to 200.1 cents per gallon. California prices saw a decrease of 4.3 cents to 239.1 cents per gallon, which is 6.4 cents higher than this time last year.

Retail diesel fuel prices were up 0.4 cent last week to 216.0 cents per gallon. Prices were mixed throughout the country, with the Rocky Mountains seeing the largest regional decrease of 2.8 cents to 217.9 cents per gallon. California prices fell by 0.6 cent to 236.7 cents per gallon.

May Propane Build About Average
U.S. inventories of propane continued their seasonal build during May with a 9.0-million-barrel gain that was slightly higher than the most recent 5-year average of nearly 8.7 million barrels for the month. Combined with last week’s inventory increase of 2.3 million barrels, U.S. primary propane inventories stood at an estimated 42.2 million barrels as of May 27, 2005, a level that remains over 8 million barrels above the same time last year. Regional gains were reported in most areas last week that included a 0.1-million-barrel increase in East Coast, and a larger build in the Gulf Coast measuring 0.9 million barrels. The Midwest reported the largest increase last week with a 1.2-million-barrel addition, while the combined Rocky Mountain/West Coast regions remained flat during this same period. Moreover, after the first two months of the traditional build season, all of the major propane consuming regions remain ahead of their respective levels at this same point last year. Despite a 0.2-million-barrel rise, the share of propylene non-fuel use inventories continued to inch lower last week with a reported 11.4 percent share of total propane/propylene inventories, compared with the prior week’s 11.5 percent share.

Text from the previous editions of “This Week In Petroleum” is now accessible through a link at the top right-hand corner of this page.