Released on October 18, 2006
(Next Release on October 25, 2006)

300 Million
The U.S. Census Bureau estimates that the U.S. population reached 300 million yesterday morning (October 17). Although not nearly as widely publicized, , U.S. crude oil inventories climbed above 300 million barrels in the week ending March 4, 2005 after running below that level for most of the time since late 2002. Crude oil stocks have not fallen below 300 million barrels since, and at 335.6 million barrels as of October 13, U.S. inventories are well above the 5-year average for this time of year, which is around 294 million barrels. So what do U.S. crude oil inventories have to do with the U.S. population?

Crude oil is not an end product, but is used to make refined petroleum products for consumption, such as gasoline, diesel fuel, heating oil, jet fuel, petrochemicals, as well as many other products. Population growth and economic growth are two important drivers of oil demand. Generally speaking, growth in population and the economy result in increased use of petroleum products, with more people driving to work and to buy goods, as well as increased oil use for manufacturing, construction activities, and to transport goods. Many analysts expect oil demand growth to slow if economic growth slows.

U.S. crude oil inventories have continued to trend to higher levels since passing the 300 million barrel milestone in early 2005 for a number of reasons. First, the market has been in contango, i.e., crude oil future prices for delivery in later months are higher than prices for delivery in the near-term. If sufficiently higher, these price differentials will more than make up for the increased cost of storage. Additionally, the relatively low level of global spare crude oil production capacity has helped to create the contango situation and encouraged stock building as a viable hedge against the possibility of future supply disruptions.

As a graph of U.S. crude oil inventories shows, they have been well above the average range for many months now, yet crude oil prices remain relatively high. One reason is that oil demand remains strong, even with high oil prices. As last week’s This Week In Petroleum highlighted, although it appeared that oil demand declined in 2005 compared to 2004, once final data were published, it was evident that oil demand increased slightly last year, even as the near-month futures price for West Texas Intermediate crude oil rose from the low $40s early in 2005 to above $60 per barrel later in the year. Economic and population growth drove this outcome, even as crude oil prices rose by nearly 50 percent. Currently, the Census Bureau projects that the U.S. population will reach 400 million sometime in 2043. Continued economic and population growth will keep acting as forces driving oil demand, counteracted by efficiency gains, and perhaps, switching towards alternative fuels. In this environment, it is useful to evaluate inventory levels in terms of both absolute quantities and the days of demand cover they provide.

Residential Heating Fuel Prices Inch Lower
Residential heating oil prices decreased for the period ending October 16, 2006. The average residential heating oil price fell 0.2 cent last week to reach 238.5 cents per gallon, a decrease of 26.5 cents from this time last year. Wholesale heating oil prices increased by 3.2 cents to reach 177.7 cents per gallon, a decrease of 32.5 cents compared to the same period last year.

The average residential propane price decreased 0.6 cent, to reach 193.6 cents per gallon. This was a decrease of 1.3 cents compared to the 194.9 cents per gallon average for this same time last year. Wholesale propane prices gained 1.3 cents per gallon, from 100.5 cents to 101.8 cents per gallon. This was a decrease of 20.6 cents from the October 17, 2005 price of 122.4 cents per gallon.

U.S. Average Retail Gasoline Price Continues Declining
The U.S. average retail price for regular gasoline as of October 16 fell 3.5 cents to hit 222.6 cents per gallon, which is 49.9 cents lower than a year ago. East Coast prices fell 3.4 cents to 220.7 cents per gallon, 55.9 cents lower than at this time last year. The Midwest saw prices fall 2.4 cents to 212.9 cents per gallon, while the Rocky Mountains price fell 7.7 cents to 241.4 cents per gallon. West Coast prices were still the highest in the nation after falling 5.8 cents to 250.9 cents per gallon. California prices fell by 6.1 cents to 254.0 cents per gallon.

Retail diesel fuel prices fell by 0.3 cent to reach 250.3 cents per gallon, 64.5 cents lower than last year. This is the ninth week in a row that overall prices have fallen, but some regions saw slight increases. East Coast prices fell 1.2 cents to 252.1 cents per gallon, but Midwest prices were up slightly, by 1.1 cent, to 245.9 cents per gallon. The Gulf Coast saw a 1.5 cent rise to 246.1 cents per gallon. The Rocky Mountains and West Coast saw slightly larger decreases, with the Rocky Mountains falling 4.5 cents to 253.9 cents per gallon and the West Coast dropping 4.2 cents to 265.5 cents per gallon.

Imports Keep Propane Inventories Rising
The strong level of imports over the past several weeks have contributed to keep propane inventories rising, despite a wave of cold weather that swept through portions of the Midwest and East Coast last week. U.S. propane inventories rose by 1.2 million barrels last week and reached an estimated 72.0 million as of October 13, 2006. However, last week’s cold weather did limit the weekly stockbuild to the Gulf Coast, which showed inventories higher by 1.6 million barrels. Cold weather apparently offset the strong level of imports into the Midwest region that showed inventories unchanged from last week, while East Coast inventories reported a 0.3-million-barrel decline during this same time. Also, the combined Rocky Mountain/West Coast regions reported inventories lower by 0.1 million barrels last week. Propylene non-fuel use inventories remained relatively unchanged last week, and accounted for approximately 4.5 percent of total propane/propylene inventories, the same as reported during the prior week.

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