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Cushing Inventories Cause More Pain to Oil Prices

Crude Prices Remain Volatile as the US Keeps Pumping More Oil (Part 6 of 11)

(Continued from Part 5)

Cushing inventories

Cushing, Oklahoma is the delivery point for NYMEX crude futures contracts. It’s where a lot of crude supply sources meet a lot of the crude demand sources. So, monitoring inventory levels at Cushing is a very important part of understanding what’s going to happen to WTI (West Texas Intermediate) prices.

Crude stocks at Cushing have continuously been rising since October 2014 when stocks were close to ~19 million barrels. This week, stocks at Cushing increased 2.3 million barrels (or MMbbls) to 51.5 million barrels.

These levels are just ~0.3 MMbbls short of the record high inventory levels of ~51.8 MMbbls in January 2013.

Given that inventories have increased by an average ~2.1 MMbbls since the beginning of this year, it’s highly likely that inventories will soon cross the previous record and set a new one, as US production continues to surge.

To put things further into perspective, according to the EIA, Cushing has about 71 MMbbls of crude storage. Current storage is about ~73% of the storage capacity, as per the EIA. Coupled with the fact that inventories have been continuously rising for the past four months, the current high inventory level heightens the possibility that Cushing will soon approach its full capacity. If the oil hub reaches its full storage, oil prices could tumble further.

Increasing inventories pull prices lower, which in turn hurts the margins of companies such as Apache (APA), Oasis Petroleum (OAS), Concho Resources (CXO), and ExxonMobil (XOM). All of these companies are components of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), and make up ~5% of the ETF.

Continue to Part 7

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