uploads///Declining Cushing Supplies

New takeaway capacity pushes Cushing oil levels near 6-year lows

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Aug. 1 2014, Published 12:35 p.m. ET

Cushing stocks edge lower

Crude oil stocks at Cushing, Oklahoma, where WTI is priced, fell 900,000 barrels to 17.9 million barrels in the week ended July 25. These levels are the lowest since October 2008 and more than 24,000 barrels below last year’s levels.

According to an EIA report in March, Cushing inventories have been declining due to the following reasons.

  • TransCanada’s Keystone Pipeline and Cushing Marketlink pipeline: The startup of TransCanada’s Cushing Marketlink pipeline and TransCanada’s Keystone XL pipeline have allowed for moving Cushing crude to Gulf Refineries. With the completion of Marketlink, flows from Cushing to the Gulf Coast are no longer constrained.
  • Refinery run rates: Sustained high crude oil runs at refineries in the Midwest and the Gulf Coast, which are get supplies from Cushing, have also resulted in a decline in Cushing supplies.
  • Infrastructure that came online in 2013 and 2014: Sunoco Logistics’ Permian Express pipeline and Magellan Midstream Partners’ Longhorn pipeline have enabled Permian crude to be delivered to the Gulf Coast, while rapid development of crude-by-rail networks has made it possible to move Bakken crude to East Coast and West Coast refineries. Plus, in July 2014, Enterprise Products Partners completed its Seaway pipeline expansion project which currently transports crude oil from Cushing to the Gulf Coast.

Falling inventories are bullish for WTI crude

Falling crude inventories are a positive signal for WTI crude, which typically trades higher when supply levels are low at Cushing, its pricing and delivery point.

Higher oil prices support the margins of oil-weighted companies like Oasis Petroleum (OAS), Hess Corporation (HES), Chevron (CVX), and ExxonMobil (XOM). Most of these companies are components of the Energy Select Sector SPDR ETF (XLE).

However, despite a fall in inventories, oil prices edged lower. WTI prices traded lower, to $100.27 per barrel on July 30 compared to $100.97 per barrel the day prior. Refer Part 3 of this series for why crude prices declined despite a drop in inventories.

The WTI-Brent spread

Learn about the effects on the WTI-Brent spread in the next part of this series.

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