Why Cushing stocks continue to increase
Must-know: Surging US oil production dampens oil prices' hope (Part 6 of 8)
Cushing inventories
Crude stocks at Cushing, Oklahoma increased by 776,000 barrels to 21.4 million barrels (or MMbbls) in the week ending October 24. Cushing, Oklahoma is an important hub. It’s where West Texas Intermediate (or WTI) crude oil is priced.
Cushing inventories have been rising for three consecutive weeks. Last week’s increase was a result of refineries operating at lower capacities.
However, inventory levels are significantly lower than the levels last year. Inventory data for the same period last year pinned Cushing stocks at 35.5 MMbbls.
Long-term declining trend at Cushing
The main reason why Cushing inventories declined so drastically this year is the new infrastructure that came online. The new infrastructure allowed more crude to move out of Cushing.
The 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 and Cushing Marketlink Pipeline. As a result of these pipelines, flows from Cushing to the Gulf Coast are no longer constrained.
Will the declining trend continue?
As new pipelines come online to bring more crude from Canada and North Dakota—the Bakken—to Cushing, the downward trend may not continue.
The Pony Express is operated by Tallgrass Energy Partners (or TEP). It connects Cushing with Guernsey, Wyoming. The project was completed earlier in October. It started commercial services. The pipeline transports Bakken crude to Cushing.
ENB’s Flanagan South Pipeline project will run through Illinois to Cushing. It’s also expected to come online in November 2014.
As these pipelines come online and start bringing crude oil to Cushing, inventories will likely stabilize. As more pipelines come online, inventories may even start rising again.
Midstream companies play an important role
The midstream sector plays an important role in laying out infrastructure based on which crude inventories move.
Some of the midstream companies mentioned above are part of the Alerian MLP ETF (AMLP). ENB is part of the Alerian Energy Infrastructure ETF (or ENFR).
In the next part of the series, we’ll discuss the movement in West Texas Intermediate (or WTI) prices last week.
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