Released on October 25, 2006
(Next Release on November 1, 2006)

A Possible Turning Point
Often, what comes to be seen as a turning point can only be identified after the fact. Will the St. Louis Cardinals’ victory in Game 3 of the World Series be seen ultimately as a key turning point? In retrospect, will last week’s OPEC’s announcement of 1.2-million-barrel-per-day cut in production effective November 1 be seen as a turning point for oil markets? If oil prices do start heading higher again, the week ending October 20 may be seen as the key week, with inventories heading significantly lower, thus highlighting a tightening of the supply and demand balance in the United States.

U.S. petroleum supply data for the week ending October 20, released earlier today, showed total U.S. petroleum inventories falling by more than 11 million barrels, the largest decline since the week ending September 2, 2005, when stocks fell sharply following Hurricane Katrina. Over the past 95 weeks, since the beginning of 2005, this is only the sixth time that inventories of crude oil, gasoline, and distillate fuel all declined in the same week, and the first time since the week ending August 4. While many analysts were expecting a decline in gasoline and distillate fuel inventories, under the assumption that refinery inputs would still be relatively low due to refinery maintenance and low refinery margins (apparently a correct assumption), the drop in crude oil inventories by 3.3 million barrels was surprising. Of course, the decline was largely the result of a sharp drop in crude oil imports, which averaged just 9.5 million barrels per day, a drop of over 0.9 million barrels per day from the previous week. Weekly import volumes are one of the hardest statistics to predict, due to timing and other issues, and as such, too much should not be made from one week’s worth of data. Nevertheless, with U.S. crude oil inventories well above the average range for this time of year, it does appear logical that at some point, refiners would begin drawing down this abundant inventory rather than paying for additional imports.

Whether last week’s sharp decline in inventories actually proves to have been a turning point remains to be seen. Clearly, U.S. oil market data will be closely watched by analysts worldwide over the coming weeks for signs of further tightening. It is generally accepted that the inventory situation in the United States is probably more comfortable than that seen in the two other key oil market regions, Europe and Asia. Should inventories continue to erode over the next several weeks, it may be seen as an indication that oil markets globally are beginning to tighten, even ahead of any real impact from OPEC’s announced production cuts. Under this scenario, it would not be too surprising to see the price of West Texas Intermediate crude oil rise, especially if temperatures at the beginning of the Northern hemisphere heating season are relatively low. While baseball commentators and oil market analysts are both paid to share their musings and prognostications, we’re unlikely to know whether the week of October 20 was a turning point in the world oil market until well after the final out in the 2006 World Series is recorded.

Residential Heating Oil and Propane Prices Remain Relatively Unchanged
Residential heating oil prices increased very slightly for the period ending October 23, 2006. The average residential heating oil price rose 0.1 cent last week to reach 238.6 cents per gallon, a decrease of 23.7 cents from this time last year. Wholesale heating oil prices decreased by 3.2 cents to reach 174.5 cents per gallon, a decrease of 28.1 cents compared to the same period last year.

The average residential propane price did not change from last week, remaining at 193.4 cents per gallon. This was a decrease of 1.6 cents compared to the 195.0 cents per gallon average for this same time last year. Wholesale propane prices fell 1.2 cents per gallon, from 101.8 to 100.6 cents per gallon. This was a decrease of 18.8 cents from the October 24, 2005 price of 119.4 cents per gallon.

U.S. Average Retail Gasoline Price Decline Slows While Diesel Prices Increase
The U.S. average retail price for regular gasoline fell 1.8 cents to hit 220.8 cents per gallon as of October 23, 39.5 cents lower than a year ago. East Coast prices fell 2.8 cents to 217.9 cents per gallon, 45.6 cents lower than at this time last year. The Midwest saw a rise of 1.8 cents to 214.7 cents per gallon, but the price is still 30.4 cents lower than at this time last year. The Rocky Mountains average price fell 6.2 cents to 235.2 cents per gallon, while West Coast prices fell 5.0 cents to 245.9 cents per gallon. California prices fell by 5.9 cents to 248.1 cents per gallon.

Retail diesel fuel prices saw their first increase in ten weeks, with prices rising 2.1 cents to 252.4 per gallon. East Coast prices were up 1.6 cents to 253.7 cents per gallon and Midwest prices went up 4.3 cents, to 250.2 cents per gallon. The Gulf Coast saw the average price rise by 1.6 cents to 247.7 cents per gallon, while the Rocky Mountains saw a 2.4-cent jump to 256.3 cents per gallon. The West Coast was the only region where prices fell, with a 2.7-cent decrease to 262.8, which is 51.4 cents per gallon lower than at this time last year.

Strong Imports Fall Short of Lifting Propane Inventories
Even with the continuation last week of the recent strong surge in imports, U.S. propane inventories remained relatively unchanged from the previous week at an estimated 72.0 million barrels as of October 20, 2006. As refinery maintenance programs begin to trim propane production levels, strong imports in recent weeks have more than compensated for any shortfall in propane supplies, as evidenced by rising inventories. However, with many parts of the Nation beginning to experience colder temperatures, the strong level of imports was not able to completely offset regional inventory withdrawals. Specifically, while East Coast and Gulf Coast inventories reported respective inventory gains of 0.2 million barrels and 0.3 million barrels last week, Midwest inventories plunged lower by 0.5 million barrels during this same time. Moreover, the combined Rocky Mountain/West Coast regions remained unchanged last week, as did the portion of propylene non-fuel use inventories. With total propane/propylene and non-fuel use inventories unchanged last week, the share of propylene non-fuel use inventories to total propane/propylene inventories also remained unchanged at 4.5 percent, compared with the prior week.

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