Released on November 30, 2005
(Next Release on December 7, 2005)

Prognostications
At this time of year, there are usually a lot of forecasts as to who will make the NFL playoffs and which college football teams will play for the national championship. While almost everyone has determined that the University of Texas and the University of Southern California will ultimately play for the national championship, others are having a hard time determining if there will be an NFL playoff game played in Chicago this season. But the end of November also brings out prognostications about oil markets during the winter, and this year is no exception. Will crude oil prices continue to fall? Will the average price of regular gasoline in the country (currently at about $2.15 per gallon) fall below $2.00? While only the passage of time can reveal which football and oil market prognostications will prove to be correct, a review of fundamentals can help to sharpen our views of the most likely outcomes.

Consider, for example, the forces driving crude oil prices, which have recently been trending lower. It is true that U.S. commercial crude oil inventories are currently plentiful, but this situation could change, especially if weather turns more seasonal (colder) and refineries continue to ramp up production to make enough distillate fuel for current needs and build gasoline inventories sufficiently for next year’s peak driving season. As refineries continue to increase their throughput, crude oil inventories could fall, as they did in today’s data release for last week, unless imports average well above 10 million barrels per day. The Minerals Management Service reported that as of November 29, more than 564,000 barrels per day of offshore crude oil production remains shut-in. Some analysts project that it may be months before the bulk of this shut-in production can come back on line, with some of the production reportedly not coming back online until mid-2006. EIA data for last week shows that U.S. crude oil production averaged less than 4.8 million barrels per day, and it is likely to remain well below 5 million barrels per day for many weeks, if not months, to come. With refinery throughput already over 15.1 million barrels per day, and possibly heading towards 15.5 million barrels per day or higher over the next several weeks (the December 2004 average was 15.75 million barrels per day), simple subtraction indicates that crude oil imports will need to average well above 10 million barrels per day to keep crude oil inventories from falling. Fortunately for now, there is ample crude oil inventory available, but should crude oil imports continue to average just 9.7 million barrels per day, as they did last week, substantial drops in inventories should be expected. Therefore, either crude oil inventories will likely begin a sustained drop or U.S. refineries will need to continue to buy imported crude oil at relatively strong rates. Either way, this could put some upward pressure on WTI prices in the coming weeks.

As any motorist knows, gasoline prices have dropped dramatically over the last several weeks as gasoline supplies have increased just as demand typically sees a seasonal decline (see the November 9 and 16 editions of This Week In Petroleum for more details). However, recent wholesale price trends suggest that while retail gasoline prices may fall a little bit more over the next week or two, price movements beyond that timeframe will be influenced by the trend in crude oil prices. If crude oil prices do begin to start rising, or even stop falling, gasoline prices may not drop enough from the U.S. average for regular gasoline of $2.15 per gallon as of November 28 to reach as low as $2.00 per gallon (even though some parts of the country are already seeing prices lower than $2.00 per gallon).

But just as few people outside of the Chicago area expected the Chicago Bears to win 8 of their first 11 games, or anyone expected the Philadelphia Eagles to have a worse record at this point in the season than 8 of its conference opponents, prognostications can often be wrong. Whether EIA’s view of the likely direction of markets proves to be right will only be seen over time.

Residential Heating Fuel Prices Continue Their Gradual Decrease
Residential heating oil prices decreased for the period ending November 28, 2005. The average residential heating oil price was reduced by 1.4 cents from last week to reach 241.7 cents per gallon, an increase of 38.7 cents from this time last year. Wholesale heating oil prices increased 0.2 cent to reach 173.3 cents per gallon, an increase of 25.7 cents compared to the same period last year.

The average residential propane price decreased 0.2 cent, to 193.8 cents per gallon. This was an increase of 23.4 cents over the 170.4 cents per gallon average for this same time last year. Wholesale propane prices increased 0.8 cent per gallon, from 106.2 cents to 107.0 cents per gallon. This was an increase of 8.5 cents from the November 29, 2004 price of 98.5 cents per gallon.

U.S. Retail Gasoline Price Decreases for Eighth Straight Week
The U.S. average retail price for regular gasoline dropped by 4.7 cents to 215.4 cents per gallon, falling for the eighth week in a row. This price was the lowest since June 13, 2005 but still 20.9 cents higher than this time last year. Retail prices have fallen by more than 77 cents per gallon in the past eight weeks. Although prices fell nationwide, the Rocky Mountains saw the largest decrease of 7.0 cents to 218.2 cents per gallon. The Midwest had the lowest regional price after falling 3.3 cents to 205.4 cents per gallon. West Coast prices fell 4.4 cents to 238.9 cents per gallon, the highest regional price in the country, while California prices fell 4.1 cents to 241.2 cents per gallon. East Coast prices fell by 5.4 cents to 215.2 cents per gallon.

Retail diesel fuel prices fell 3.4 cents to reach 247.9 cents per gallon, the lowest price since August 8, 2005. The U.S. average retail diesel price has fallen almost 68 cents per gallon during the last five weeks. Prices were down throughout the country, with the Rocky Mountains seeing the largest regional decrease of 6.3 cents to 259.1 cents per gallon. Midwest prices were down 3.5 cents to 244.2 cents per gallon, the lowest regional price in the nation. West Coast prices, the highest in the country, averaged 261.7 cents per gallon after falling 3.5 cents.

Propane Inventories Continue to Grow
Despite the relatively bitter temperatures over the Thanksgiving holiday in many parts of the country, U.S. inventories of propane continued higher last week with a 2.3-million-barrel build that placed inventories at an estimated 70.8 million barrels as of November 25, 2005. Near-record weekly imports totaling almost 0.5 million barrels per day, coupled with continued gains in propane production, apparently more than offset the frigid weather over many portions of the Midwest and East Coast last week. Following strong imports into the East Coast and Gulf Coast regions, inventories followed suit with respective gains of 0.4 million barrels and 1.6 million barrels. Midwest inventories also reported a 0.4-million-barrel gain last week, even though imports were lower compared to the prior week. The combined Rocky Mountain/West Coast regions continued their downward trend last week with a weekly inventory loss measuring 0.1 million barrels that put inventories at 2.6 million barrels. Propylene non-fuel use inventories plunged lower by 0.4 million barrels to 3.3 million barrels, accounting for a 4.7 percent share of total propane/propylene inventories.

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