Large Cushing Inventory Build Could Limit Upside for Crude Prices
Cushing crude oil inventories
Market data provider Genscape reported that Cushing crude oil inventories rose by 1,038,251 barrels between December 23 and December 30, 2016. A rise in crude oil inventories at Cushing could limit the upside for US crude oil (BNO) (PXI) (ERX) (USL) (USO) (ERY) (UCO) prices.
Moves in crude oil prices impact the earnings of crude oil and natural gas producers such as Marathon Oil (MRO), SM Energy (SM), Occidental Petroleum (OXY), Swift Energy (SFY), PDC Energy (PDCE), and Goodrich Petroleum (GDP). They also impact funds such as the Vanguard Energy ETF (VDE), the iShares US Oil Equipment & Services (IEZ), the ProShares UltraShort Bloomberg Crude Oil (SCO), and the ProShares Ultra Oil & Gas (DIG).
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EIA’s crude oil inventory report
On January 5, 2017, at 10:30 AM EST, the EIA (U.S. Energy Information Administration) will release its crude oil inventory report for the week ending December 30, 2016.
For the week ending December 23, 2016, the EIA reported that Cushing crude oil inventories rose by 172,000 barrels to 66.4 MMbbls (million barrels) compared to the previous week. Cushing crude oil inventories were ~7% higher than in the same period in 2015.
Cushing crude oil inventories hit 68.3 MMbbls, the highest point ever, in the week ending May 13, 2016. New pipelines that came online in 2014 and 2015 led to the rise in Cushing crude oil inventories. Read Build in US Crude Oil Inventories Impacted Crude Oil Prices for more on US crude oil inventories. For more on the crude oil market outlook in 2017, read What Can Investors Expect in the Crude Oil Market in 2017 and Decoding the World Oil Supply and Demand Gap in 2017.
Cushing’s storage capacity
Cushing, Oklahoma, is the delivery point for crude oil futures contracts trading on NYMEX. It’s also the largest crude oil storage hub in the US. Cushing’s crude oil storage capacity is 73 MMbbls.
Cushing’s crude oil inventories fell
For the week ending December 23, 2016, Cushing crude oil inventories have fallen 2.7% from their peak levels. Falling inventories could benefit crude oil prices. As you can see in the above graph, crude oil prices and inventories have an inverse relationship. However, Cushing crude oil inventories have risen 7.4 MMbbls, or 12%, in the last five weeks. High Cushing crude oil inventories could pressure crude oil prices in 2017.
Lower crude oil prices have a negative impact on the profitability of crude oil producers like Marathon Oil (MRO), SM Energy (SM), Occidental Petroleum (OXY), Swift Energy (SFY), PDC Energy (PDCE), and Goodrich Petroleum (GDP).
Next, we’ll analyze the US crude oil rig count for last week.