Released on July 16, 2008
(Next Release on July 23, 2008)

Grilling Season vs. Heating Season
While use of propane in outdoor applications such as grilling and camping reaches a peak during the spring and summer, overall propane demand is typically low during this period, allowing for primary stockholders (refineries, bulk terminals, etc.) to rebuild supplies in preparation for winter.

From the end of March through June 27, primary stockholders added 15.7 million barrels to propane inventories, about 23 percent below the most recent 5-year average of nearly 20.5 million barrels. Consequently, at the midpoint of the typical build season (April through September), propane inventories stood at an estimated 41.4 million barrels as of June 27. While only slightly below the June 30, 2007 level of 43.8 million barrels, propane inventories are tracking below the lower boundary of the average range for this time of year (see Figure 7. Weekly Petroleum Status Report). With a similar level of inventory growth during the second half of the build season, total propane inventories would reach about 57 million barrels (see figure below) prior to the start of the next winter heating season, marking the lowest pre-heating season level since 1996.

Absent an acceleration in inventory growth, 2008 would be the second consecutive year that propane inventories fell short of reaching levels averaged over the most recent 5-year period. In 2007, propane inventories totaled 58.3 million barrels by the end of September, and continued to build to nearly 61 million barrels by the end of October. Even at this higher level, some market observers thought inventories were still marginal for the 2007-08 winter heating season. Fortunately, last winter’s temperatures remained close to normal, which provided a measure of stability to propane markets for meeting expected demand without any major distribution problems.

Despite seemingly slow growth in inventories so far this year, the major supply components from production and imports remain relatively close to recent year averages. Since the end of March, total propane production averaged about 1.1 million barrels per day through June 27, roughly matching the most recent 5-year average. Propane imports averaged about 148 thousand barrels per day through the same period, a little below the most recent 5-year average of 159 thousand barrels per day, but slightly above imports during the second quarter of 2007.

Part of the weakness in the propane stockbuild this year may be attributed to the low build rate during June, nearly 60 percent below the most recent 5-year average for that month. June inventories grew by just 3.4 million barrels, the lowest rate for that month since 1985. However, data for the start of the second half of the build season show a return to stronger inventory growth. Propane stocks added 3.6 million barrels over the last two weeks to total 45.0 million barrels as of July 11, but they still remain below the average range.

The low rate of inventory growth in June more than offset above-average builds during April and May. A possible explanation may stem from the rapid rise in propane prices following the upward path of crude oil and other petroleum product prices since early spring. Consumers may have decided to hedge against the possibility of even higher future prices by starting their winter fill programs early. The spike in June propane demand (product supplied) of more than 1.0 million barrels per day, could reflect such activity, rather than a shattering of previous monthly records for outdoor barbeque grilling.

Diesel Price Climbs to Another Record High
For the first time since June 23, the U.S. average retail price for regular gasoline did not increase; at 411.3 cents per gallon, the price dipped just a tenth of a cent. On a regional basis, prices were mixed, going up in the Midwest, Gulf Coast, and Rocky Mountains while dropping somewhat in the East Coast and West Coast. On the East Coast, the price dropped 0.8 cent to 407.1 cents per gallon. In the Midwest, the price rose 0.7 cent to 406.6 cents per gallon. Despite going up by 1.3 cents to 397.1 cents per gallon, the Gulf Coast price remained the lowest of any region and continued to be the only region where the price was under $4. For the second week in a row, the increase in the Rocky Mountains was the largest of any region, moving up 3.2 cents to 409.7 cents per gallon. The West Coast price dropped 2.5 cents to 441.5 cents per gallon. The average in California also went down, dropping 3 cents to 452 cents per gallon, still 136.2 cents higher than the price a year ago.

For the second week in a row, the U.S. average retail diesel price increased. The price strengthened 3.7 cents to another all-time high of 476.4 cents per gallon. The prices rose to new record highs in all five regions. The average price on the East Coast increased 3.3 cents to 482.2 cents per gallon. The price in the Midwest remained the lowest of any region at 469.8 cents per gallon, an increase of 4.4 cents. The average price in the Gulf Coast rose 4 cents to 473.7 cents per gallon. The Rocky Mountains had the largest rise of any region, jumping 4.6 cents to 471.8 cents per gallon. On the West Coast, the average price moved 2.3 cents higher to 490.9 cents per gallon. In California, the average price also increased, going up 2.5 cents to 502.6 cents per gallon.

Propane Inventories Moderately Higher
Primary inventories of propane posted a moderate build last week of 1.0 million barrels, pushing up inventories to an estimated 45.0 million barrels as of July 11, 2008. This was in stark comparison with the prior week’s sharply higher gain of 2.6 million barrels. Regional activity showed East Coast inventories down by 0.3 million barrels but with Midwest and Gulf Coast inventories showing respective gains of 0.4 million barrels and 0.9 million barrels. The combined Rocky Mountain/West Coast region remained mostly unchanged during this same time. Propylene non-fuel use inventories continued higher with a weekly increase of 0.2 million barrels that pushed the volume of this fuel up to account for 5.8 percent of total propane/propylene. The prior week’s share was 5.4 percent.

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