New York (Platts)--31Dec2008

US implied oil demand readings have improved on a four-week moving
average and week-over-week, which may reflect a pickup as a result of the drop
in retail prices or it may be seasonal, according to a Platts analysis of
Energy Information Administration data released Wednesday.

Total US demand on a four-week moving average at 19.936 million b/d was
down 3.7 percentage points, but that was an improvement of 0.5 percentage
points from the previous week's report. The one product for which implied
demand worsened was jet fuel. Demand for jet fuel at 1.404 million b/d was
down 12.4 percentage points on a four-week moving average.

Retail gasoline prices fell 4 cents/gal week-over-week to $1.6130/gal as
of December 29 and were $1.44/gal lower than year-ago levels while diesel
prices were 3.9 cents/gal lower week-over-week and $1.0180/gal lower than one
year ago. Retail gasoline prices were $2.50/gal lower than the all-time high
of $4.1130/gal July 14. Retail on-highway diesel prices were $2.4370/gal lower
than the all-time high of $4.7640/gal also posted July 14.

Still, a pickup in demand is not unusual at this time of year.

Week-over-week, gasoline demand climbed 239,000 b/d to 9.106 million b/d
while diesel demand jumped 208,000 b/d to 4.31 million b/d.

Despite the acceleration in implied gasoline demand and a drop in
production, stocks edged up 800,000 barrels to 208.103 million barrels. At
208.103 million barrels, gasoline stocks were 353,000 barrels below the
five-year average, but 261,000 barrels above year-ago levels as weak demand
has been more than offset by low refiner output due to poor margins.

Gasoline production dropped 151,000 b/d to 8.939 million b/d while output
of distillate climbed 148,000 b/d to 4.542 million b/d as refiners cashed in
on a NYMEX heating oil crack spread that was running at a $16/barrel premium.

Increased output of middle distillates was sufficient to offset higher
implied demand, resulting in a stock build of 700,000 barrels to 136.031
million barrels, with the increase was concentrated in diesel inventories, not
heating oil. At 136.031 million barrels, middle distillate stocks were 9.37
million barrels above the five-year average and 8.892 million barrels above
year-ago levels.

The real surprise was a 549,000-barrel build in US crude stocks, but the
entire increase was on the isolated West Coast. But the decline of 541,000
barrels to 28.143 million barrels at the NYMEX delivery point in Cushing,
Oklahoma, defied market economics given the steep contango in the front of the
NYMEX crude curve. And the decline occurred as PADD II (Midwest) runs edged
lower. Either end-of-year tax considerations factored into the drop in Cushing
stocks or the oil is en route from the Gulf Coast where inventories fell
187,000 barrels to 158.502 million barrels despite a 435,000 b/d jump in
imports into that region. The data suggests there should have been a 2.05
million barrel draw in total US crude inventories.

--Linda Rafield, linda_rafield@platts.com