Cushing, Oklahoma is the delivery point for NYMEX crude futures contracts. It’s where a lot of crude oil supply sources meet demand sources. Monitoring inventory levels at Cushing is important to understand what’s going to happen to West Texas Intermediate (or WTI) prices.
Crude stocks at Cushing decreased by 694,000 barrels to ~23.9 million barrels (or MMbbls) in the week ending November 28. This is the first decrease since the refinery maintenance season ended.
A decrease in inventories is bullish for WTI prices.
Long-term declining trend at Cushing
Inventories at Cushing had been in a declining trend for most of this year. New infrastructure came online. This allowed more crude to leave Cushing.
This new infrastructure includes TransCanada’s (TRP) Keystone XL pipeline, Enterprise Product Partners’ (EPD) and Enbridge’s (ENB) joint venture Seaway pipeline, and Magellan Midstream Partners’ (MMP) Longhorn pipeline. It also includes the Cushing Marketlink pipeline.
As a result of these pipelines, refiner demand from the Gulf Coast sucked crude supplies from Cushing down to as low as ~17.9 MMbbls at the end of July. However, stocks rebounded ~30% to current levels.
What’s helping to end the declining trend?
New pipelines helped drain crude from Cushing. They also brought more crude to help refill Cushing’s stocks. An example is the Pony Express that Tallgrass Energy Partners (TEP) operates. It brings Bakken crude from Guernsey, Wyoming to Cushing.
Also, Enbridge’s (ENB) Flanagan South pipeline project will run from Pontiac, Illinois to Cushing. It’s expected to come online later this year.
So, as more pipelines bring crude to Cushing, inventories should stabilize. They might even increase again.
Some of the midstream companies mentioned here are part of the Alerian MLP ETF (AMLP). AMLP is a great way for investors to play the booming energy infrastructure sector.
In the next part of this series, we’ll analyze the movements in crude prices in the past week.