CERA Alert: December 15, 2000 

Title: Refined Products Line--North American Markets 
CERA Knowledge Areas: Refined Products 

US Margin Highlights 
* Responding to falling apparent demand and rising primary inventory levels, 
US Gulf Coast unleaded gasoline margins versus WTI fell by $2.26 per barrel 
to average $1.45 per barrel during November. Gasoline margins have returned 
to a historically normal range after spending the summer of 2000 at 
exceptionally high values. CERA expects gasoline margins to WTI to average 
$2.75 per barrel during the first quarter of the New Year, $1.16 per barrel 
lower than this year's first quarter average. 

* High sulfur No. 2 fuel oil differentials with WTI dropped slightly, 
averaging $5.97 per barrel in November. Despite the drop of $0.37 per barrel 
from October's average, fuel oil differentials remain at unprecedented 
values-$4.20 per barrel higher than a year ago and $3.46 per barrel greater 
that the previous five-year average. For the first quarter of 2001, CERA 
anticipates distillate margins to moderate somewhat but remain at a record 
high level of $4.75 per barrel in the first quarter.

* Jet/kerosene differentials versus WTI rose $0.63 per barrel from the 
October average, reaching a whopping $8.59 per barrel in November. In 
correspondence with the distillate market, jet/kerosene margins are at 
historically high levels and receiving support from relatively tight 
fundamentals. CERA expects jet/kerosene margins to moderate somewhat in the 
first quarter in response to seasonal weakening of demand following the 
holiday travel season but to remain exceptionally strong at an average of 
$5.75 per barrel.

* Margins for US Gulf Coast 1% sulfur residual fuel dropped by $2.15 per 
barrel, reaching $3.99 per barrel below WTI during November. Despite the 
recent widening of differentials, CERA expects soaring natural gas prices to 
support relatively narrow residual fuel differentials throughout the winter 
months. Residual fuel differentials are expected to average $2.50 per barrel 
below WTI during the first quarter of next year, at the high end of the 
historical range.

US Demand Highlights 
* Apparent demand for unleaded gasoline fell seasonally by about 0.5 million 
barrels per day (mbd) from the October level, reaching 8.36 mbd for the four 
weeks ending December 8. Demand is averaging less than 1 percent below last 
year largely because Y2K concerns helped inflate December demand a year ago. 
CERA anticipates gasoline demand to continue to decline seasonally as colder 
temperatures arrive, averaging 8.08 mbd during the first quarter of 2001.

* Reported distillate apparent demand remains exceptionally strong at 3.94 
mbd for the four weeks ending December 8, over 7 percent greater than this 
time last year. This represents a slight increase of about 0.05 million 
barrels (mb) from the end-October level of 3.90 mb, but still a record high 
level for early December. With support from low home heating oil inventories, 
particularly in the Northeast, distillate demand has been very strong during 
the fall of 2000. CERA expects demand to remain strong in the coming winter 
months, averaging 3.79 mb during the first quarter of next year. 

* Apparent demand for jet fuel declined by 5 percent from the October level 
to reach 1.68 mbd for the four weeks ending December 8. Despite the decline, 
apparent jet fuel demand is over 1 percent above the year-ago level. The 
relative strength of jet fuel reported demand continues to parallel 
distillate demand strength with support coming from the use of jet fuel to 
help mitigate the tight distillate market fundamentals. CERA expects the 
demand for jet fuel to average 1.81 mb during the fourth quarter. 

* Reported demand for residual fuel dropped to 0.87 mbd for the four weeks 
ending December 8, a decline of about 0.09 mbd from the October average and a 
slight increase over the November level. Demand for residual fuel is 
currently 11 percent greater than last year, and surging natural gas prices 
are expected to result in continued strong residual fuel demand throughout 
the winter. Residual fuel demand is expected to remain in the 0.85 to 0.9 mbd 
range during the first quarter of 2001.

US Inventory Highlights 
* Primary inventories of unleaded gasoline rose to 196.5 mb, increasing 
almost 10 mb from the end-October value. Responding to rising stock levels 
and declining apparent demand, forward supply coverage of gasoline climbed to 
23.5 days for the four weeks ending December 8. Forward supply is 2.5 percent 
below last year's level at this time of year and at its lowest level in the 
past eight years-although CERA still believes coverage is currently 
sufficient for the level of demand expected this winter. However, CERA is 
looking cautiously at the implications of high distillate refinery yields and 
production because of the possibility of low gasoline inventories at the 
start of the driving season in the second quarter of next year.

* Distillate inventory coverage has remained about level since the end of 
October at 29.2 days of forward supply for the four weeks ending December 8. 
Despite record high apparent demand, strong refinery production levels helped 
boost primary distillate inventories slightly, to 115.3 mb for this period. 
Primary stocks are 16 percent below last year's level at this time and at 
their lowest historical level ever. Although stocks are low, CERA does not 
anticipate shortages to occur this winter. Assuming normally cold weather, 
refinery production and net imports are expected to be capable of meeting 
demand requirements-albeit at a high price. 

* Jet fuel inventory coverage crept upward by about 1 day of coverage, to 
reach 25.7 days of forward supply for the four weeks ending December 8. This 
moves jet fuel coverage above the 23.5 to 25 days' supply range that it had 
been in for the past four months. The rise of just under 1 day in forward 
supply was mainly a response to a decline in apparent demand. Jet inventories 
and coverage are expected to become tighter in the coming weeks as the pull 
from tight distillate markets strengthen, but supplies are expected to be 
adequate for the winter.

* Inventory coverage of residual fuel rose by almost 4 days of forward supply 
from October, reaching 41.7 days of forward supply during the four weeks 
ending December 8. The increase in coverage was a temporary response to a 
drop in demand and an increase in stocks. With demand expected to strengthen 
because of colder weather and high gas prices, CERA looks for inventories and 
coverage gradually to decline in the coming weeks. 

**end** 

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