Cushing inventories increase for the third week in a row
1 crucial factor dwarfed this week's crude oil inventory report (Part 6 of 8)
Cushing inventories
Cushing, Oklahoma, is the delivery point for NYMEX crude futures contracts. It’s where a lot of supply sources of crude meet a lot of demand sources for that crude. So, monitoring inventory levels at Cushing is a very important part of understanding what’s going to happen to WTI prices.
Crude stocks at Cushing increased by 1.3 million barrels to ~24.6 MMbbls (million barrels) in the week ended November 21. This is the third consecutive increase Cushing inventories have seen. A build in inventories is bearish for WTI prices.
Long-term declining trend at Cushing
Inventories at Cushing had been in a declining trend for the better part of this year as new infrastructure came online, enabling increased movement of crude out of Cushing. This new infrastructure includes TransCanada’s (TRP) Keystone XL Pipeline, Enterprise Product Partners’ (EPD) and Enbridge’s (ENB) joint venture Seaway pipeline, and Magellan Midstream Partners’ (MMP) Longhorn pipeline, as well as the Cushing Marketlink pipeline.
As a result of these pipelines, refiner demand from the Gulf Coast sucked crude supplies from Cushing down to as low as ~17.9 million barrels at the end of July. But stocks have since rebounded ~30% to current levels.
What’s helping to end the declining trend?
As new pipelines helped drain crude from Cushing, new pipelines have also brought more crude to help refill stocks there. One such pipeline is the Pony Express that Tallgrass Energy Partners (TEP) operates. It brings Bakken crude from Guernsey, Wyoming, to Cushing.
Plus, Enbridge’s (ENB) Flanagan South pipeline project—which will run from Pontiac, Illinois, to Cushing—is expected to come online later this year. So, as more pipelines bring crude to Cushing, inventories should stabilize, and maybe even rise again.
Some of the midstream companies mentioned here are components of the Alerian MLP ETF (AMLP), a great way to play the booming energy infrastructure sector.
Continue to the next part of this series for an analysis of movements in crude prices in the past week.
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