The American Petroleum Institute already has reported an unprecedented 12.7% drop in domestic petroleum inventories during 1999. "Inventories declined more than 130 million barrels during the year," said Ronald J. Planting, information and analysis manager in API's policy analysis and statistics department. "To find a similar-size drop, one would have to go back to 1982, when unusually high inventories were being scaled back. The difference this time is that inventories ended the year roughly matching the recent-year December low reached in 1996." As Planting briefed reporters in Washington on API's year-end statistics, David A. Pursell and Jeff A. Dietert of Simmons and Co. International issued their own report in Houston. They found that crude oil, motor gasoline and distillate inventories were at or below seasonal historic levels and very near minimum operating levels. Less than a year earlier, their analysis placed inventories at the high end of their seasonal historical values. "The unprecedented improvement in inventory levels during 1999 has occurred because of global demand growth, lagging non-OPEC supply and continued OPEC discipline," they indicated in "U.S. Petroleum Inventory: How Much is Enough?" "In other words, the underlying global supply and demand fundamentals are sound." They expect refining margins to trend higher, due to currently low motor gasoline and distillate inventories. Backwardated gasoline and distillate commodity markets encourage refiners to reduce inventories even more. Refiners have shown unusual discipline, as indicated by reported utilization levels of less than 90% during early January. With spring turnarounds to begin last month, Pursell and Dietert anticipated that refiners would keep utilization rates near that level. Finally, they noted that refining margin movements typically lag crude oil prices by about 12 months, "suggesting that refining margins should improve during the next few months, perhaps significantly." Refiners remain cautious. But it's clear that they have grown more comfortable with lower inventories. -Nick Snow
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