Posted on 03/23/2015 5:28:09 AM PDT by thackney
After increasing for 15 consecutive weeks, crude oil storage at Cushing, Oklahoma, reached 54.4 million barrels on March 13, according to EIA's Weekly Petroleum Status Report. This volume is the highest on record, but not the highest percent of storage utilization, as working storage capacity at Cushing has also increased over time.
Storage levels at Cushing are significant, because Cushing serves as the delivery point for the United States crude oil benchmark, West Texas Intermediate. Sited in central Oklahoma, Cushing is home to both a network of crude oil pipelines and storage capacity. The 70.8 million barrels of storage capacity in Cushing represent more than 60% of all crude oil working storage capacity in the Midwest (as defined by Petroleum Administration for Defense District 2) and about 19% of all commercial crude oil storage in the United States.
Although inventory levels at Cushing are at their record high, storage utilization (inventories as a percent of working storage capacity) are not at record levels. Capacity utilization at Cushing is now 77%, a large increase from a recent low of 27% in October 2014. However, utilization reached 91% in March 2011, soon after EIA began surveying storage capacity twice a year, starting in September 2010.
As explained in a previous article, utilization can be difficult to calculate, because EIA's reported inventory levels also include crude oil that is not in storage tanks. This larger inventory is in pipelines, and includes lease stocks (oil that has been produced but not yet entered into the supply chain), and crude oil in transit from Alaska (which only applies to inventories in the West Coast region).
At a national level, including these volumes in storage utilization calculations tends to overestimate storage utilization. At a specific site such as Cushing, though, this is less of a concern because there are no volumes in lease stocks and no crude oil in transit from Alaska.
Recently, the ability to ship crude oil in pipelines both to and from Cushing has increased; inventory levels can change more rapidly than in previous years. Using the absolute value of weekly changes, Cushing inventory levels in the previous two months have changed by about 2.2 million barrels (on a net basis). In previous years, the net weekly changes were more often in the range of 0.5 to 1.0 million barrels either in or out of Cushing.
Although inventory levels at Cushing are at their record high, storage utilization (inventories as a percent of working storage capacity) are not at record levels. Capacity utilization at Cushing is now 77%, a large increase from a recent low of 27% in October 2014.
We have a glut.
I’ve noticed some interesting pricing going on where I live. The price of gas both at the Pilot stations on I-65 and the ones in the small towns by where I live were at the $2.20 range and dropping a penny or two every couple of days.
Then, last thursday, the price at my local area was between $2.07 and $2.15, depending on the station, but all the Pilot and other “near the freeway” stations went to $2.59.
Today, it was still cheap in the towns and the freeway stations were down to $2.46. Since moving to KY from Seattle I’ve noticed the prices are much more overtly manipulated here. The pricing curve looks like a sawtooth with slow and steady drops followed by a sudden 20-50 cent rise in one day, at ALL the stations at once.
But the current environment just doesn’t seem to support it.
I’ve seen the same pricing pattern in SW Michigan for years.
I’ve been reading about oil traders who are betting that the oil they’ve stored at Cushing will be worth more in the future.
Given the fact the Saudis are producing at peak levels with no sign of a slow down, I’m not sure that’s a winning bet.
The price of gasoline is indirectly related to the price of crude oil. Gasoline prices are more related to the storage of gasoline and may vary somewhat on what is is in storage in a particular area.
This time of year many refineries are undergoing maintenance switching to summer blend. This creates a bottleneck in the supply chain causing the supply of crude to increase while the supply of gasoline decreases.
I saw where T Boone Pickett Fence was saying oil will be back up to $70 a barrel by the 4th quarter.
I’ve been reading about oil traders who are betting that the oil they’ve stored at Cushing will be worth more in the future.
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They already sold a future contract to deliver oil at a future date. They are not betting, they locked in a profit based upon a lower cost to store over the time.
Last week the govenment reported a 9.6 million barrel increase in crude oil inventories while reporting a 4.5 million barrel decrease in gasoline inventories.
I drove the Cushing tank farms yesterday. Construction of new 500,000+ barrel tanks continues apace.
Oldplayer
At least a piece of the oil patch is busy...
Isn’t the southern section of Keystone working and able to bring crude from Cushing to Gulf Coast refineries?
I read an investment newsletter that I get regularly stating all storage capacity will be maxed out around June.
Yes, the Gulf Coast Pipeline by Trans-Canada has been operating for a while. Along with a few other additional pipelines over the last couple years have increased the take-away capacity from Cushing to the Gulf Coast.
Those pipelines were the reason the WTI to Brent spread dropped down to nearly zero recently, but the build up in storage levels has pushed that level higher.
Lol...sure they have.
Many market watchers had expected big commodity-trading firms to capitalize on the price gap between different oil-futures contracts by buying physical barrels, storing them on ships and locking in profits by selling futures contracts for delivery further out in the future.
http://www.freerepublic.com/focus/f-news/3262234/posts
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Some may be betting on a higher price. But there have been many locking in profit at the time they put oil in storage. The futures price just a few months out has stayed higher than the cost to store for many months now.
http://online.wsj.com/mdc/public/page/2_3028.html?category=Energy&subcategory=Petroleum
Some more info on the pipelines and Cushing.
Seven months ago the giant tanks in Cushing, Okla., the largest crude oil storage hub in North America, were three-quarters empty. After spending the last few years brimming with light, sweet crude unlocked by the shale drilling revolution, the tanks held just less than 18 million barrels by late July, down from a high of 52 million in early 2013. New pipelines to refineries along the Gulf Coast had drained Cushing of more than 30 million barrels in less than a year.
As quickly as it emptied out, Cushing has filled back up again. Since October, the amount of oil stored there has almost tripled, to more than 51 million barrels. As oil prices have crashed, from more than $100 a barrel last summer to below $50 now, big trading companies are storing their crude in hopes of selling it for higher prices down the road. With U.S. production continuing to expand, that’s led to the fastest increase in U.S. oil inventories on record. For most of this year, the U.S. has added almost 1 million barrels a day to its stash of crude supplies. As of March 11, nationwide stocks were at 449 million barrels, by far the most ever.
Not only are the tanks at Cushing filling up, so are those across much of the U.S. Facilities in the Midwest are about 70 percent full, while the East Coast is at about 85 percent capacity. This has some analysts beginning to wonder if the U.S. has enough room to store all its oil. Ed Morse, the global head of commodities research at Citigroup, raised that concern on Feb. 23 at an oil symposium hosted by the Council on Foreign Relations in New York. “The fact of the matter is, we’re running out of storage capacity in the U.S.,” he said.
And in the expectation of continued large fluctuations?
I think that is too general a statement to be correct. Big drops in storage levels is a fluctuation.
I see storage capacity gets built, when the working spare capacity gets low enough to drive up the price to store oil. I'm not sure there is expectations that this condition is going to last long enough to pay off. I see greater pressure on pipeline and rail capacity to get built. There is price pressure to get inland produced oil to compete more with coastal refineries and further reduce imports of crude oil.
This larger inventory is in pipelines,
This confirms what I was saying earlier...before you 'corrected' me.
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