Released on January 10, 2007
(Next Release on January 18, 2007)

Bowled Over
Over the last three weeks, college football fans have been able to witness 32 different bowl games, culminating with the Bowl Championship Series Championship game in which the University of Florida defeated Ohio State University. With so many bowl games, it becomes a little difficult to analyze what they all mean. So, too, is it sometimes difficult to discern what the latest U.S. weekly petroleum data mean to the market, given the vast amount of data that are released each week.

The data that receive most of the headlines when they are initially released are the changes in inventory levels for crude oil, total gasoline (which includes blending components such as RBOB), and total distillate fuel (which includes ultra-low-sulfur diesel fuel, regular diesel fuel, and heating oil). But even these items are sometimes difficult to interpret without looking at the whole picture over a given week and looking at the trend over the last several weeks. This week’s data provides a good example of the complexity of the data.

At first glance, oil analysts looking at EIA’s petroleum data for the week ending January 5 may be shocked at the magnitude, if not the direction, of the crude oil, total gasoline, and total distillate fuel stock changes from the previous week. Crude oil inventories declined by 5.0 million barrels, while total gasoline inventories rose by 3.8 million barrels (including an increase of 1.6 million barrels in blending components) and total distillate fuel inventories rose by 5.4 million barrels (with sizeable increases in all categories). But, to put these data in context, it is important to note other data released along with them.

First, regarding crude oil, inputs into refineries increased while imports declined substantially. With domestic production relatively flat from week to week, additional supply for refineries must come from either imports and/or drawdowns from inventories. If crude oil inputs into refineries increase, and imports decrease significantly, a large crude oil inventory drawdown must occur. Given that crude oil inventories were above the average range for this time of year, there was plenty of crude oil available to draw upon, making the large crude oil draw this week not as alarming as it may first appear. Plus, the draw last week was a continuation of draws seen over the last several weeks, and inventories still remain above the average range, even after the latest draw, albeit by much less than they were several weeks ago.

The build in gasoline and distillate fuel inventories is not too surprising, given the recent rise in crude oil inputs to refineries. Even though gasoline production declined this week, at nearly 9.2 million barrels per day, it remains very high for the winter. Also, imports of both gasoline and distillate fuel are relatively high, adding to supply. As a result, inventories are building, as supply has outpaced demand. Looking at recent weekly data also provides context to the latest builds. During most of the fourth quarter of 2006, inventories for both gasoline and distillate fuel were falling relative to their normal patterns. Total gasoline inventories went from above the average range to below the average range (see Figure 4 in the Weekly Petroleum Status Report), while total distillate fuel inventories went from well above the average range to the middle of the average range (see Figure 5 in the Weekly Petroleum Status Report). As a result, the refinery margin (the difference between the price refiners can sell the products for and the price they pay for crude oil) increased, thus providing an economic signal to add supply of these fuels to the market. The result: an increase in refinery production and product imports, which ultimately leads to a rebuilding of product inventories.

Thus, just as college football fans may have been “bowled over” by the sheer volume of bowl games recently, oil analysts and traders can sometimes find the weekly data overwhelming. But if the data is looked at as a whole and over several weeks, a clearer understanding of U.S. oil markets can be gained.

Residential Heating Oil Prices Drop Further, Yet Propane Prices Inch Upward
Residential heating oil prices decreased once more during the period ending January 8, 2007. The average residential heating oil price dropped 2.7 cents per gallon last week to reach 238.8 cents per gallon, a decrease of 5.6 cents from this time last year. Wholesale heating oil prices decreased 8.1 cents to reach 160.3 cents per gallon, a decrease of 23.0 cents compared to the same period last year.

The average residential propane price increased by 0.6 cent, reaching 199.2 cents per gallon. This was a decrease of 1.7 cents compared to the 200.9 cents per gallon average for this same time last year. Wholesale propane prices decreased by 5.5 cents per gallon, from 98.5 to 93.0 cents per gallon. This was a decrease of 15.7 cents from the January 9, 2006 price of 108.7 cents per gallon.

Retail Gasoline and Diesel Prices Continue to Decrease
The U.S. average retail price for regular gasoline for January 8, 2007 decreased 2.8 cents to 230.6 cents per gallon. Prices are now 2.1 cents per gallon lower than at this time last year. East Coast prices fell 2.6 cents to 231.9 cents per gallon. The Midwest saw the largest regional decrease, with prices falling 5.3 cents to 221.0 cents per gallon. Gulf Coast prices were down 2.9 cents to 217.1 cents per gallon, while Rocky Mountain prices fell 1.2 cents to 223.4 cents per gallon. The only region to see an increase was the West Coast, with prices going up 1.3 cents to 259.4 cents per gallon. Prices there have now risen for nine consecutive weeks and are 29.0 cents per gallon higher than at this time last year.

Retail diesel fuel prices also fell this week, decreasing 4.3 cents to 253.7 cents per gallon. Prices are 5.2 cents higher than at this time last year. For the second consecutive week, all regions saw a decrease in price. East Coast prices fell 4.5 cents to 252.0 cents per gallon, while the Midwest price dropped 5.1 cents to 248.3 cents per gallon. The Gulf Coast saw a decrease of 4.1 cents to 245.9 cents per gallon. Rocky Mountain prices fell 1.5 cents to 268.2 cents per gallon, and prices on the West Coast decreased 2.9 cents to 282.4 cents per gallon.

Propane Inventories Move Sharply Lower
U.S. propane inventories moved sharply lower last week with a 2.1-million-barrel stockdraw that positioned the nation’s primary inventories at an estimated 59.8 million barrels as of January 5, 2007. However, despite sharply lower inventories, and with propane markets beginning to enter the most critical heating months of January and February, propane inventories remain above the upper boundaries of their respective average ranges for this time of year at both the national level as well as in the major heating regions in the East Coast and Midwest. Propane inventories continued to show the largest weekly decline in the Gulf Coast region with a 1.5-million-barrel drop, while inventories in the Midwest reported a more modest 0.3-million-barrel decrease during this same time. The combined Rocky Mountain/West Coast regions reported a surprisingly sharp weekly decline measuring 0.6 million barrels, while inventories in the East Coast reported a weekly build of 0.3 million barrels. Propylene non-fuel use inventories inched lower last week with a 0.1-million-barrel drop that accounted for a 5.8 percent of total propane/propylene inventories, unchanged from the prior week’s share.

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