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Released on October 17, 2002
(Next Release on October 23, 2002)
After the Storms
Although tropical storms and hurricanes in the Atlantic Ocean and the Gulf of Mexico are
not unusual in the month of September, this hurricane season�s two big storms (Tropical
Storm Isidore and Hurricane Lili) did impact the U.S. oil market. But now that these
storms are over, we can put into context the impact they had on U.S. oil markets as we
see the first sign of cold weather approaching the Northeast, where distillate fuel is
used to heat homes much more than in any other region of the country.
By comparing data to the week ending September 20, the last weekly data point before
the effects of both storms were felt, we can evaluate the impact the storms had. Of
course, the market most directly affected was the U.S. crude oil market. With both
storms landing along the Gulf Coast, not only was a significant portion of domestic
production affected, but also the largest offshore oil port (the Louisiana Offshore
Oil Port or LOOP) in the United States. As a result, crude oil inventories across
the United States fell from 285.2 million barrels as of September 20 to just 270.5
million barrels as of October 4. Looking at just PADD III (Gulf Coast), the decline
was almost the same, falling by 15.3 million barrels over that two-week period
compared to the national decline of 14.7 million barrels. So what happened last
week after the storms had come and gone? U.S. crude oil inventories increased by
8.9 million barrels (reclaiming about 60 percent of the decline over the previous
two weeks), but crude oil inventories in the Gulf Coast region increased by 11.5
million barrels (reclaiming 75 percent of the decline over the previous two
weeks). But this also means that outside of the Gulf Coast, crude oil inventories
last week fell by 2.6 million barrels. This occurred despite the fact that crude
oil refinery inputs declined in all regions last week (except for PADD 1, the
East Coast, where they were essentially flat), which would normally cause
inventories to rise, since if crude oil isn�t being refined, it is likely being
stored for future use. With crude oil inventories outside the Gulf Coast dropping,
it appears that the underlying trend of falling crude oil inventories that began
slowly in April, and more earnestly in June, is continuing.
The impact on refined petroleum products from the storms can be evaluated in much
the same manner as crude oil inventories. For petroleum products, it was the
closure or slowing of refineries that caused product inventories to fall. With
less production coming from reduced refinery inputs, product inventories were needed
to help supply the demand for these products. But unlike crude oil, which showed
large increases in both production and imports last week, refinery inputs (and thus
refinery production) continued at reduced levels, in fact dropping an additional
500,000 barrels per day last week compared to the previous week. October is typically
a month for refineries to temporarily shut down or reduce inputs in order to perform
maintenance. One explanation for the low level of refinery inputs last week could
be that since refineries had to shut down due to the storms, they took advantage of
this and rather than starting up for just a few days, went ahead and performed the
maintenance. Regardless of the reason, the reduction in refinery production has
drawn down product inventories such that all major petroleum product inventories (with
the exception of propane which is detailed below) are below levels seen last year,
with distillate fuel inventories, in particular, at the lower limit of the normal
range for this time of year. Gasoline inventories, after falling by 6.3 million
barrels last week, are now close to the lower limit of the normal range after being
at the upper limit all summer! So it appears that while the storms did cause crude
oil inventories on October 4 to fall to the lowest level seen since the mid-1970s,
the subsequent increase last week does not erase the underlying trend of declining
crude oil inventories in the United States. In fact, the impact of the storms may
be most felt by the rapid drop in product inventories in recent weeks, with distillate
fuel and, surprisingly gasoline, both at or near the lower limit of the normal range. Put differently, a major impact of these storms was to accelerate the ongoing, but weak, product inventory decline. While refinery margins have improved, and following maintenance, some product recovery is expected, it now appears likely that both crude oil and product inventories will remain low at the onset of cold weather.
Retail Gasoline and Diesel Fuel Prices Highest Since September 2001
The U.S. average retail price for regular gasoline increased over the last week, rising by 0.1 cent per gallon as of October 14 to end at 144.0 cents per gallon, the highest since September 24, 2001. This price is 13.1 cents per gallon higher than last year. Retail prices have been increasing over the past few weeks, as they catch up with crude oil price increases seen in recent weeks. With gasoline inventories now sharply lower, especially in the Midwest, further hikes in retail prices are expected. Retail diesel fuel prices increased for the ninth week in a row, rising by 0.1 cent per gallon to a national average of 146.1 cents per gallon as of October 14. U.S. diesel fuel prices have risen 15.8 cents per gallon since they started to increase nine weeks ago, and with distillate fuel stocks expected to remain near or even below the low edge of the normal range throughout the winter, it is unlikely that prices will soften. Distillate fuel inventories decreased recently, falling by 4.7 million barrels during the first two weeks of October, adding to the upward pressure on prices. Retail diesel prices were up throughout most of the country, with the largest price increase occurring in the Rocky Mountain region, which rose by 0.9 cent per gallon to end at 150.3 cents per gallon. Prices on the West Coast fell by 0.7 cent per gallon to end at 152.7 cents per gallon.
Residential and Wholesale Heating Oil and Propane Prices Increase
Residential heating oil prices for the October 14, 2002 reference period increased from 125.6 to 126.3 cents per gallon, an increase of 0.7 cent per gallon and up 1.7 cents per gallon from one year ago. Wholesale heating oil prices rose by 1.1 cents per gallon, 85.0 to 86.1 cents. Residential propane prices, currently at 113.1 cents per gallon, gained 0.9 cent per gallon from last week�s propane price of 112.2 cents per gallon. Residential propane prices are 0.9 cent lower than last year�s prices. Wholesale propane prices showed a slight decrease this week at 52.7 cents per gallon, down 0.2 cent.
Storms Also Trim Propane Inventories
U.S. propane inventories slid lower by 1.4 million barrels since the end of September as the impact of tropical storms earlier in the month were felt by the temporary shutdown of production and refining operations on the Gulf Coast. As of the week ending October 11, 2002, U.S. inventories of propane stood at an estimated 69.8 million barrels, a level that now tracks at the upper limit of the average range for this period. Regional inventories also reflected the impact of the storms, with restocking falling short of propane movement out of primary storage ahead of colder weather. Consequently, Midwest inventories fell by nearly 0.5 million barrels while Gulf Coast inventories declined by more than 0.8 million barrels. East Coast inventories were not affected as much as the other regions, with a reported decline of less than 0.1 million barrels.
Propane Inventory Releases Now on Weekly Schedule
Propane inventory data will be released weekly beginning with today�s release for the week ending October 11, 2002, and will continue on this schedule through March 2003.
Note: Texts from previous editions of �This Week In Petroleum� are now accessible through a link at the top right-hand corner of this page.
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