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Oil inventories were up strongly last week with demand still very weak, down 6.6% from the same period last year. Inventories rose for total petroleum, gasoline and crude oil and declined by 100,000 barrels for propane/propylene and 200,000 barrels for distillate fuels. For those heating with propane a bad winter cold snap could mean much higher prices as inventories are below average for the season. With refinery activity up, gasoline production up and jet fuel demand still more than 17% below year ago levels, propane is the only major petroleum category with real short term potential for a sustained price spike. Distillate fuel demand is below last year levels, but this category bears watching as the inventory levels approach the lower end of the average range and demand is down the least of the reported products.

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Today's This Week in Petroleum from the Energy Information Administration reported that gasoline prices are now lower than year ago levels in all US regions. After six consecutive weeks of declines, prices have fallen nearly 31% to a national average of $2.656 per gallon. (Locally, gas prices have been under $2/gallon in southwest Missouri for the last 5 days.) Gas prices may stabilize at this level as gasoline inventories fell slightly and are again slightly below the average range for the season when measured in barrels (but within the average range in days of supply). Propane/propylene inventories decreased by 700,000 barrels, but crude oil, distillate fuel and total petroleum inventories rose. On the demand side, total products were down nearly 8% from the same 4-week period last year with all categories down and jet fuel down over 13%.

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This Week in Petroleum brings good news: US proven reserves of crude oil increased 2% in 2007 and added enough proved reserves of natural gas to cover twice the yearly production.

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US oil inventories rebuilt this week, though the picture is still mixed. Distillate fuel inventories fell by 2.3 million barrels to the very edge of the average range for the season, just as the season for using heating oil gets underway. Gasoline inventories rebuilt to a level just under the average range, but did so largely on the strength of a 4.5% drop in product supplied to the market as refineries continued operating at less than 75% capacity in the wake of hurricane damage. Crude oil inventories and propane/propylene inventories both rose and total commercial petroleum inventories were up by 500,000 barrels.

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The oil markets are breathing such a big sigh of relief from the US Gulf production emerging relatively unscathed from Hurricane Gustav that they are taking another down week for inventories in stride. The strong dollar is also a factor the last several days. Gasoline inventories also fell again, but the rate of decline has gotten back in line with seasonal norms and gasoline is back into the low end of the average range for this time of year.

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