Released on November 15, 2006
(Next Release on November 22, 2006)

A Final Conclusion?
This weekend, two major sporting events will determine a champion in one case, and a likely participant in a championship game in the other. Jimmie Johnson hopes to capture NASCAR’s Nextel Cup title after the final race of the year at the Homestead-Miami Speedway, and the winner of the Ohio State and Michigan game will be considered a strong favorite to make it to the college football championship game in January. While sports often provide a clear-cut outcome, petroleum data is often not as conclusive. This week’s petroleum data can be interpreted by different analysts to reach totally different conclusions.

Some analysts have pointed to the high absolute levels of U.S. petroleum inventories relative to the average range in recent weeks, as shown in Figure 2 in the Weekly Petroleum Status Report, as one of the reasons for the recent fall in oil prices, and a reason why they do not expect any significant rise in prices over the next several weeks. However, other analysts look at the same data and draw a different conclusion. They see inventories dropping much faster than normal for this time of year. Moreover, with demand higher than in recent years, stocks considered in terms of the days of supply (or demand) that inventories can cover are lower than they appear on an absolute basis. This interpretation would lead one to think that markets are tightening and that oil prices could be poised to head higher soon.

There has also been discussion among analysts lately about the level of demand, particularly for distillate fuel. Over the most recent four weeks, demand for distillate fuel oil (which includes both heating oil and diesel fuel) is averaging nearly 4.5 million barrels per day, the sixth highest four-week average ever, and the highest four-week average ever for any period that doesn’t include weeks in January or February, when cold weather usually leads to a peak in distillate fuel demand. At face value, the data may suggest to some that with distillate fuel demand this high before the cold weather arrives in full force, the heart of winter could see demand strong enough to sharply tighten distillate balances, despite seemingly high inventories.

However, others point to two reasons why the amount currently supplied into the market (which is actually what the “demand” data reported by EIA are measuring) may overstate actual U.S. consumption of distillate fuel. First, they point to a possible surge in secondary and tertiary inventories resulting from high deliveries drawn from primary stocks. That is, distillate fuel retailers and consumers may be adding to their inventories by pulling from inventories from refiner and wholesaler inventories, the stock holders that EIA surveys. If so, one might expect a delay in additional primary inventory withdrawals once cold weather hits, as the secondary and tertiary levels would need to be drawn down before being replenished. Secondly, analysts know that EIA does not collect weekly data on exports and instead relies heavily on the latest monthly data to estimate exports. But there have been reports that exports have been elevated recently, with increased demand for diesel fuel in some regions, including Central and South American countries. If, indeed, exports are much higher now than they were in August (the latest monthly data currently available), this would mean that U.S. demand (or product supplied to domestic markets) is lower than currently estimated from weekly data.

While we will know by Sunday evening if Jimmie Johnson is this year’s NASCAR’s Nextel Cup winner and whether Ohio State or Michigan has the inside track to the college football championship game, the direction of near-term oil prices will remain uncertain. EIA’s latest assessment, released last week, is that prices are more likely to rise than fall over the coming months. All said, the severity of winter weather may ultimately determine the near-term path of oil prices.

Residential Heating Fuel Prices Rise Together
Residential heating oil prices increased for the period ending November 13, 2006. The average residential heating oil price rose 1.0 cent last week to reach 238.0 cents per gallon, a decrease of 8.6 cents from this time last year. Wholesale heating oil prices increased by 1.6 cents to reach 175.3 cents per gallon, a decrease of 2.1 cents compared to the same period last year.

The average residential propane price increased by 0.6 cent, to reach 194.6 cents per gallon. This was an increase of 0.1 cent compared to the 194.5 cents per gallon average for this same time last year. Wholesale propane prices increased by 5.1 cents per gallon, from 99.0 to 104.1 cents per gallon. This was a decrease of 0.6 cent from the November 14, 2005 price of 104.7 cents per gallon.

Retail Gasoline and Diesel Prices Both Increase
The U.S. average retail price for regular gasoline rose 3.2 cents to 223.2 cents per gallon as of November 13th, 6.4 cents per gallon lower than at this time last year. East Coast prices rose 2.8 cents to 219.8 cents per gallon. In the Midwest, prices rose 3.8 cents to 221.8 cents per gallon. Gulf Coast prices were up 2.9 cents to 210.9 cents per gallon. The West Coast saw the largest regional increase, with prices rising 5.7 cents to 243.8 cents per gallon. The only region that saw a price decrease was the Rocky Mountains, with prices falling 2.0 cents to 225.4 cents per gallon.

Retail diesel fuel prices were also up this week, with average nationwide prices increasing 4.6 cents to 255.2. Prices are still 5.0 cents less than at this time last year. Regionally, all areas saw increases. East Coast prices were up 2.2 cents to 253.0 cents per gallon and Midwest prices rose 6.9 cents, to 256.2 cents per gallon. The Gulf Coast saw the average price go up by 2.1 cents to 247.0 cents per gallon. The Rocky Mountains saw a jump of 4.6 cents to 262.3 cents per gallon, while the West Coast increased 6.7 cents to 267.3 cent per gallon, the most expensive in the country.

Propane Inventories Slightly Lower
The weekly draw on U.S. propane inventories measured a modest 0.1 million barrels last week, moving the nation’s primary supply of propane only slightly lower to an estimated 71.4 million barrels as of November 10, 2006. Relatively moderate weather in some parts of the country and the continued strong volume of imports combined to maintain total propane inventories at a level just above the upper boundary of the average range for this time of year. East Coast inventories reported the only gain last week that totaled 0.3 million barrels, partially the result of strong imports into the region, while inventories in the Midwest and Gulf Coast regions reported weekly declines of 0.1 million barrels and 0.3 million barrels, respectively. During this same period, inventories in the combined Rocky Mountain/West Coast regions remained relatively unchanged. Propylene non-fuel use inventories moved up by 0.2 million barrels last week and accounted for a larger 5.4 percent share of total propane/propylene inventories, compared with the prior week’s 5.1 percent share.

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