The persistent stratus clouds found west of Chile and Peru are important for the coupling of the ocean and atmosphere in the eastern Pacific and thus in the climate of the region. The relatively cool sea-surface temperatures found west of Peru and northern Chile are believed to play a role in maintaining the stratus clouds over the region. In October 2000 a buoy was deployed at 20S, 85W, a site near the center of the stratus region, in order to examine the variability of sea-surface temperature and the temporal evolution of the vertical structure of the upper ocean. The buoy was wellinstrumented and obtained accurate time series of the surface forcing as well as time series in the upper ocean of temperature, salinity, and velocity.The variability and the extent to which local forcing explains the temporal evolution of upper ocean structure and heat content was examined. The sources of heating (primarily surface fluxes with weaker contributions from Ekman convergence and transport) are found to be balanced by cooling from the gyre-scale circulation, an eddy flux divergence and vertical diffusion. The deduced eddy flux divergence term is bounded away from zero and represents an order one source of cooling (and freshening). We postulate that the eddy flux divergence represents the effect of the cold coherent eddies formed near the coast, which propagate westward and slowly decay. Direct advection of coastal upwelled water by Ekman transport is negligible. Thus the upwelled water does influence the offshore structure, but through the fluctuating mesoscale flow not the mean transport.