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Crude Oil Prices Succumb to Long-Term Fundamentals and Fall 1.7%

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Part 2
Crude Oil Prices Succumb to Long-Term Fundamentals and Fall 1.7% PART 2 OF 5

Cushing Crude Oil Inventory Is 58% above 5-Year Seasonal Average

Cushing crude oil inventory

The API (American Petroleum Institute) reported that the crude oil inventory at Cushing, Oklahoma, rose by 0.14 MMbbls (million barrels) for the week ending January 29, 2016. Likewise, the EIA (U.S. Energy Information Administration) reported that the Cushing crude oil inventory rose by 0.75 MMbbls to 64.2 MMbbls for the same period. Cushing, Oklahoma, is the largest US crude oil storage hub. It’s also the delivery point for the crude oil futures contracts trading on NYMEX.

Cushing Crude Oil Inventory Is 58% above 5-Year Seasonal Average

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Nationwide crude oil inventory 

The EIA reported that the nationwide crude oil inventory rose by 7.8 MMbbls to 502.7 MMbbls for the week ending January 29, 2016. The current nationwide inventory is 36% more than the five-year seasonal average. The Cushing crude oil inventory is also 58% more than the five-year seasonal average. This suggests crude oil prices will see more pain. To learn more about the nationwide crude oil inventory, read EIA Crude Oil Inventory Breaks 34-Year Record Inventory High. Gasoline and distillate inventories are also 8% and 16% more than five-year averages, respectively. For more on the gasoline inventory, read US Gasoline Inventories Shake up Crude Oil and Gasoline Prices. For more on distillates, read US Distillate Inventories Fall on Low Distillate Production.

Cushing Crude Oil Inventory Is 58% above 5-Year Seasonal Average

Why has the Cushing crude oil inventory risen? 

New pipelines coming online in 2015 has led to the rise in the Cushing crude oil inventory. The pipeline infrastructure in this area is the Keystone pipeline, which is owned by TransCanada (TRP). The rising Cushing crude oil inventory could support crude oil exports. However, the current WTI-Brent spread makes US crude oil exports unviable. Lately, crude oil storage capacities have been increased due to rising crude oil inventories and long-term oversupply concerns.

Impact on oil prices and oil producers 

Crude oil prices have fallen more than 70% since June 2014. One of the key reasons is rising US and global crude oil inventories. There are about 1 billion barrels of crude oil in global inventories, which are expected to rise further in 2016. Further, there’s glut in the refined products markets. The record-low crude oil prices affect oil producers like Anadarko Petroleum (APC), Hess (HES), Pioneer Natural Resources (PXD), Energy XXI (EXXI), and Halcón Resources Corporation (HK). Record inventory also benefits contango crude oil market traders. To learn more about the contango market, read the next part of this series.

The roller-coaster ride in oil and gas prices also affects ETFs like the United States Oil Fund (USO), the ProShares Ultra Bloomberg Crude Oil ETF (UCO), and the Vanguard Energy ETF (VDE).

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