Released on October 19, 2005
(Next Release on October 26, 2005)

How Much Has Oil Demand Dropped?
As the leaves begin to fall this autumn, many oil market analysts have focused their attention on how much oil demand has fallen since the hurricanes. A lot has been said about oil demand dropping significantly below year-ago levels, with particular attention paid to gasoline demand data. One of the main reasons for this attention is that strong U.S. and global oil demand growth has been cited as the key factor behind high oil prices. But the question remains whether prices have reached the point where permanent demand reductions are occurring. What does the information available to date tell us?

First, there are a number of reasons why the demand decline versus last year, as shown in the Weekly Petroleum Status Report (WPSR) , could be overstated. The comparisons published in the WPSR are made between this year's weekly data and an estimate of last year's data for the same week or four-week period based on monthly data, as published in our Petroleum Supply Annual (PSA). Often, particularly for the major refined products, demand data is revised up when the monthly data becomes available, and then sometimes revised up even further once the annual publication is released. (The July 27, 2005 edition of This Week In Petroleum (TWIP) provides information about upward revisions in demand provided in the PSA.) While the weekly sample is comprehensive and a ratio adjustment is used to reflect an estimate for the entire sector, we often find additional supplies which increase "product supplied", a proxy for demand, when the monthly surveys go to all respondents and are processed. (Product supplied is defined as the amount of a product supplied or delivered into the market.) As the July 27, 2005 TWIP points out, we often find additional production and imports when processing the monthly data. Thus, comparisons between weekly and monthly demand data, as we do in the WPSR, can underestimate demand growth, or overestimate demand declines versus last year.

This can be seen easily by looking at the published data for the four weeks ending October 14, 2005. In Table 1 of the WPSR , it shows that gasoline demand is down 2.2 percent for the same four-week period last year (the week ending October 14, 2004), jet fuel is down 3.1 percent, distillate fuel is down 4.0 percent, and total oil demand is down 3.2 percent. But, if this year's weekly numbers are instead compared to the closest weekly data from last year (the four week period ending October 15, 2004), gasoline demand is only down 1.4 percent, jet fuel demand is off by just 0.8 percent, distillate fuel is down 3.5 percent, and total oil demand is down just 1.4 percent, a decline of less than half of what is shown comparing this year's data to monthly data from last year. There are pros and cons to comparing current weekly numbers to last year's monthly or weekly data. Comparing to monthly data may be seen as more accurate, as the monthly data is EIA's final estimate for that time period last year. However, the four-week data is derived by assuming the same daily numbers for each day of the month, so it is somewhat contrived. Comparing to weekly data from last year has the advantage of comparing apples (weekly information from this year) to apples (weekly information from last year), but has the disadvantages of not using the most accurate data from last year and the imperfect alignment of weeks from year to year.

As noted above, EIA surveys, both weekly and monthly, measure how much oil is supplied into the market, not actually how much is consumed. Sometimes there may be a lag between oil supplied into the market and when oil is actually consumed. This might result from different inventory behavior related to secondary or tertiary stock levels. For example, if gasoline stations are drawing down their tanks more than normal in order to postpone purchases (a reasonable strategy when prices are expected to decrease or are decreasing) then actual consumption of gasoline may be higher than the product supplied data might show. With both wholesale and retail gasoline prices dropping significantly recently, this could be another reason why EIA's estimate of gasoline demand from our weekly surveys might underestimate actual consumption.

So what is really happening with petroleum product consumption? And, with retail prices headed toward pre-hurricane levels, at least for gasoline, are consumption and/or product supplied likely to rebound in tandem? Certainly, the latter shows signs of a rebound as this week's estimates rose well above the most recent four-week average. Although we hesitate to make too much out of one week's worth of data, product supplied is likely to continue to rebound, as Gulf Coast refinery production continues to recover. The question is, how much? Coming weeks' data may shed more light on this important issue.

For the latest information on how oil infrastructure is being impacted in the aftermath of Hurricane Katrina, see EIA’s Daily Report and more detailed reports from the Office of Electricity Delivery & Energy Reliability.

Residential Heating Fuel Prices Rise Marginally
Residential heating oil prices increased slightly for the period ending October 17, 2005. The average residential heating oil price rose 0.1 cent from last week to reach 264.9 cents per gallon, an increase of 65.7 cents from this time last year. Wholesale heating oil prices increased 1.7 cents to reach 210.2 cents per gallon, an increase of 50.8 cents compared to the same period last year.

The average residential propane price increased 1.4 cents, to 194.9 cents per gallon. This was an increase of 32.3 cents over the 162.6 cents per gallon average for this same time last year. Wholesale propane prices increased 0.9 cent per gallon, from 121.5 to 122.4 cents per gallon. This was an increase of 23.3 cents from the October 18, 2004 price of 99.1 cents per gallon.

U.S. Average Retail Gasoline Price Drops 12 Cents
The U.S. average retail price for regular gasoline decreased by 12.3 cents to 272.5 cents per gallon, falling for the second week in a row. This week's price is 69.0 cents higher than this time last year. Prices were down throughout the country, with the Midwest seeing the largest regional decrease of 16.6 cents to 259.4 cents per gallon, the lowest regional price in the country. East Coast prices fell by 11.7 cents to 276.6 cents per gallon. The West Coast averaged 287.2 cents per gallon, the highest regional average price in the country, after falling 6.0 cents; California prices lost 6.2 cents to 290.2 cents per gallon.

Retail diesel fuel prices fell 0.2 cent to reach 314.8 cents per gallon, falling slightly from last week's record price. Prices were mixed throughout the country, with the Rocky Mountains seeing the largest regional increase of 3.5 cents to 317.8 cents per gallon, tying the West Coast for the highest prices in the country. East Coast prices were down 4.4 cents to 311.6 cents per gallon, the lowest regional price in the nation. California prices averaged 321.0 cents per gallon, a decrease of 3.0 cents.

Propane Inventories Show Modest Build
U.S. inventories of propane gained a modest 0.1 million barrels last week on record weekly imports that continued to offset the slow return of refinery production of propane from the recent hurricanes. As of October 14, 2005, propane inventories at the primary level inched higher to 67.5 million barrels, a level that remains near the upper limit of the average range. The nearly 0.5-million-barrels-per-day import was the highest since the start of weekly import data collection on April 9, 2004. Regional inventories rose by 0.1 million barrels in both the East Coast and Gulf Coast regions last week, while inventories in the Midwest region lost 0.2 million barrels during this same time. The combined Rocky Mountain/West Coast regions remained flat last week at 2.1 million barrels. Propylene non-fuel use inventories fell by 0.2 million barrels to 4.0 million barrels, accounting for about 5.9 percent of total propane/propylene inventories.

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