Why crude oil inventories at Cushing are up for the second week

Market Realist

Inventory data—crude oil is choppy, while natural gas is hopeful (Part 3 of 8)

(Continued from Part 2)

Cushing crude supplies

Crude supplies at Cushing, Oklahoma—where West Texas Intermediate (or WTI) is priced—saw an addition of 18.4 million barrels in the week ending August 8. Inventories increased for the second week in a row.

The addition in supply levels was likely due to the shutdown of CVR Refining’s 115,000 barrel per day (or bpd) refinery in Coffeyville, Kansas. The refinery shutdown because of a fire on July 29. The refinery draws its crude from Cushing. It’s supposed to be shutdown for three weeks.

Why Cushing inventories have been on a declining trend

The drop in Cushing inventories in the past few months is a result of expanded pipeline takeaway capacity and unusually high refinery runs this year.

New infrastructure has enabled increased movement of Cushing crude. The new infrastructure includes TransCanada’s Keystone Pipeline, Sunoco Logistics’ Permian Express Pipeline, Magellan Midstream Partners’ Longhorn Pipeline, and the Cushing’s Marketlink Pipeline. As a result of the new infrastructure, the flows from Cushing to the Gulf Coast are no longer constrained.

Also, there are sustained high crude oil runs at refineries in the Midwest and the Gulf Coast. The refineries are receiving supplies from Cushing. This has also caused a decline in Cushing’s supplies.

However, as covered in the previous sections, refineries are preparing for planned seasonal maintenance in September and October. Inventories nationwide, including Cushing, are likely to see an inventory increase even as rising output from shale formations continue. This is likely to put pressure on WTI crude prices.

Rising inventories bearish for WTI crude

Rising crude inventories aren’t a good sign for WTI crude. WTI usually trades lower when supply levels at Cushing—its pricing and delivery point—are high.

Lower prices hurt the margins of oil-weighted companies such as ConocoPhillips (COP), Anadarko Petroleum (APC), Hess Corporation (HES), and Oasis Petroleum (OAS). Most of these companies are components of the Energy Select Sector SPDR ETF (XLE).

The next part of the series discusses the impact that rising crude inventories have on crude prices—both nationwide and at Cushing.

Continue to Part 4

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