Released on August 2, 2006
(Next Release on August 9, 2006)

Sweating It Out
While many people in the United States are trying to cope with an extensive and intense heat wave that has blanketed much of the country, oil analysts are sweating as well, wondering what oil markets will do this month. August can be a critical month for oil markets, with demand often peaking just as storms and other events cut into supply (both upstream and downstream). If the first day of the month was any indication, oil analysts may be sweating it out for awhile.

Yesterday, on August 1, the Iranian President rejected a recent United Nations Security Council resolution and indicated that his country would continue to enrich uranium. Additionally, the formation of Tropical Storm Chris in the Atlantic Ocean was highlighted yesterday, with the projected path putting it north of Cuba by this weekend, with the possibility that it might enter the Gulf of Mexico sometime next week. In an environment in which very little spare production capacity is available, both upstream and downstream, each of these events in isolation would be enough to make market analysts nervous about the near-term future. But combined, along with ongoing supply uncertainties in Iraq, the Mideast, and continued production outages in Nigeria, worries about the increased risk of a supply disruption in August are keeping oil analysts on the edge of their chairs, watching daily events for signs that point to what the future might bring. Adding to this temperament is the knowledge that severe storms, even non-hurricane force storms, have often cut power to some refineries during August, causing them to be off-line unexpectedly, thus diminishing the potential to provide more supply as demand peaks.

Of course, the month could just as easily run its course with no additional supply disruptions or damaging tropical storms or hurricanes. Nevertheless, with August having the potential for being anywhere from benign to extremely eventful for oil markets, add the cadre of oil market analysts to the list of people who are sweating it out as the month of August begins. Even if the factors that analysts are worrying about don’t materialize this month, concern about potential disruptions will cause suppliers to maintain more oil in inventory, thus keeping prices relatively high.

U.S. Average Retail Gasoline Price Edges Up 0.1 Cent
The U.S. average retail price for regular gasoline crept up 0.1 cent last week to reach 300.4 cents per gallon as of July 31, which is 71.3 cents higher than last year. Prices rose for the fifth week in a row, hitting above the $3 mark for the second week in a row. East Coast prices rose 0.9 cent to 301.3 cents per gallon, while the Rocky Mountains showed the largest regional increase of 3.2 cents to 293.9 cents per gallon. West Coast prices remained the highest in the nation, falling 1.6 cents to 312.1 cents per gallon. California prices were down 2.2 cents to 319.8 cents per gallon.

Retail diesel fuel prices gained 3.4 cents to reach 298.0 cents per gallon as of July 31, which is 63.2 cents higher than last year. Prices were up throughout all major regions of the country, with the Rocky Mountains seeing the largest increase of 6.5 cents to 305.2 cents per gallon. West Coast prices remained the highest in the nation, gaining 1.9 cents to reach 306.6 cents per gallon. California fell 0.4 cent to 309.3 cents per gallon.

July Propane Build Near Record
U.S. propane inventories grew by nearly 9.6 million barrels during July, a level that surpassed the most recent 5-year average of about 7.3 million barrels and nearly matched the all-time record of more than 9.6 million barrels set during July 1986. As of July 28, 2006, U.S. inventories of propane stood at an estimated 58.2 million barrels, up 2.9 million barrels from the prior week. Overall gains were boosted by the 2.1 million barrel rise in Gulf Coast inventories, continuing the trend of strong inventory gains seen over the past several weeks. During this same period, East Coast inventories rose by 0.3 million barrels, while inventories in the Midwest gained 0.4 million barrels. The combined Rocky mountain/West Coast regions moved higher by 0.1 million barrels. Propylene non-fuel use inventories also gained 0.1 million barrels last week, but accounted for a slightly smaller 7.0 percent of total propane/propylene inventories from the prior week’s 7.2 percent share.

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