Released on April 12, 2006 (Next Release on April 19, 2006) Clean and Dirty: Not Just Your Laundry! Oil market analysts talk about the dearth of spare capacity in both the upstream and downstream sectors of the petroleum industry throughout the world, and how this is a serious factor putting upward pressure on oil prices. However, at least in the popular press, another significant limitation of the petroleum industrial infrastructure is often overlooked: transportation of both refined products and crude oil. Most international oil shipments move in oceangoing tankers. There are many different sizes of tankers used in the international transportation of oil, with capacities ranging from 50,000 deadweight tons to over 550,000 deadweight tons. A “supertanker” is generally defined as a tanker with a capacity of over 250,000 deadweight tons. There are two categories of tankers that fall into this definition: the Very Large Crude Carrier (VLCC), with a capacity up to 300,000 deadweight tons; and the Ultra Large Crude Carrier (ULCC), with a capacity exceeding 300,000 deadweight tons. ULCCs and VLCCs must unload at special deep-water petroleum terminals such as the Louisiana Offshore Oil Port (LOOP). Tankers are further divided by whether they are providing “clean” or “dirty” service. Dirty tankers carry loads of crude oil and residual fuels, while clean tankers carry lighter products such as gasoline, diesel, No.2 heating oil, and jet fuel. Light products cannot be carried in dirty tankers because they will become contaminated and no longer meet product specifications. Generally, smaller tankers carry clean cargoes of refined products, while the larger tankers carry crude oil and other dirty products. Prior to the tightening of pollution controls concerning the dumping of bilge water used in cleaning, it was easier for tankers to switch from dirty to clean fixtures. The original oil tankers used high pressure jets of hot sea water to clean oil residue from the storage tanks, which was then dumped into the sea. Over time, environmental regulations were slowly tightened, and now tankers are not permitted to discharge any oil-contaminated water into the ocean. These days, cleaning a dirty tanker for clean cargoes takes about two weeks, using streams of crude oil to remove the sludge and residue in the storage tanks, which then must be piped out. Increased demand coupled with decreased flexibility in the fleet have led to very tight capacity in both clean and dirty tankers, with the effect being felt most keenly in clean tankers. Tanker rates increased steeply in the wake of Hurricanes Katrina and Rita as exporters booked shipments to the U.S. for both light products and crude oil. Unusually high refinery maintenance in the U.S. and Asia-Pacific this spring has pushed down freight rates to the lowest level yet this year, as lower refinery input has reduced the need for crude oil imports, thus reducing the demand for tankers. However, cheap freight rates and a softening market in Europe have opened up the trans-Atlantic arbitrage in gasoline, and gasoline imports will continue to come from Europe through the summer if the price differential holds. Import levels and tanker rates usually display an inverse relationship, with low tanker rates encouraging higher imports and high tanker rates putting downward pressure on import levels. Freight rates for clean tankers usually are lowest in early autumn, after prime driving season in the U.S. but before the start of heating season. Tanker tracking indicators point to the possibility that crude oil imports could begin to increase sometime in April. Should imports of both crude oil and light products increase this summer, the increased demand for tankers could raise freight rates again and add to the cost of crude oil and light products, but probably not by more than a few pennies per gallon. While the lack of flexibility in the tanker market may not get as much publicity as the lack of spare production and refinery capacity, it is another factor that could lead to higher prices this summer. U.S. Average Retail Gasoline Adds 9.5 Cents The U.S. average retail price for regular gasoline added 9.5 cents last week, rising to 268.3 cents per gallon as of April 10, which is 40.3 cents higher than last year. Prices rose for the second week in a row, reaching their highest level since October 17 and adding 18.5 cents per gallon in just 2 weeks. Prices were up throughout the country, with the Gulf Coast seeing the largest increase of 12.3 cents to reach 269.4 cents per gallon. West Coast prices, the highest regional prices in the country, gained 7.9 cents to 275.1 cents per gallon, while California prices rose 6.8 cents to 281.1 cents per gallon, 21.9 cents higher than this time last year. East Coast prices rose 10.8 cents to 268.9 cents per gallon, while Midwest prices were up 7.8 cents to 265.4 cents per gallon. Retail diesel fuel prices increased by 3.7 cents to reach 265.4 cents per gallon as of April 10, which is 33.8 cents higher than last year. Prices were up throughout the country, with the West Coast seeing the largest regional increase of 5.9 cents to 281.2 cents per gallon. West Coast prices were still the highest regional prices in the nation, with California prices gaining 6.9 cents to 288.1 cents per gallon. Propane Inventories Post First Season Build Following the first week of the traditional build season that covers the period April through September, U.S. inventories of propane showed a surprisingly robust build of 1.9 million barrels, moving inventories up to an estimated 30.9 million barrels for week ending April 7, 2006. The weekly stockbuild was spread over nearly all of the major regions of the nation, with East Coast inventories up by 0.3 million barrels, while inventories in the Midwest and Gulf Coast regions showed gains measuring 0.5 million barrels and 1.2 million barrels, respectively. The only areas showing inventory declines last week were in the combined Rocky Mountain/West Coast regions that showed a stock-loss of 0.1 million barrels. Propylene non-fuel use inventories also posted a sizable weekly build that totaled 0.6 million barrels, pushing up the share of this product to 11.0 percent of total propane/propylene inventories from the prior week’s share of 9.7 percent.