Cushing: Another bearish number in this week’s EIA inventory report



Cushing inventories

Cushing, Oklahoma, is the delivery point for NYMEX (New York Mercantile Exchange) crude futures contracts. It’s where a lot of supply sources of crude meet a lot of demand sources for that crude. So monitoring inventory levels at Cushing is a very important part of understanding what’s going to happen to WTI (West Texas Intermediate) prices.

Unlike total US crude stocks, crude stocks at Cushing increased for the fifth consecutive week by 1.3 MMbbls (million barrels) to ~32.1 MMbbls in the week ended January 2.

These levels are almost 8.6 MMbbls less than they were a year ago.

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Why did Cushing inventories decline considerably in 2014?

As the above graph shows, inventories at Cushing were in a declining trend for the better part of 2014 as a new infrastructure came online and enabled an increased movement of crude out of Cushing.

This new infrastructure included TransCanada’s (TRP) Keystone XL Pipeline, Enterprise Products Partners’ (EPD), and Enbridge’s (ENB) joint venture Seaway pipeline. It also included Magellan Midstream Partners’ (MMP) Longhorn pipeline and 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 2014. But stocks have since rebounded to the current level of 32.1 MMbbls per day.

The new Seaway Twin Pipeline also started functioning and delivered crude to Jones Creek in Texas on December 21. The pipeline more than doubles the original pipeline’s capacity from Cushing to the Gulf Coast.

What might slow down the declining trend and even cause inventories to rise in 2015?

As new pipelines helped drain crude from Cushing, new pipelines, mostly in the latter part of 2014, also brought more crude to help refill stocks. One such pipeline is the Pony Express that Tallgrass Energy Partners (TEP) operates. It brings Bakken crude from Guernsey, Wyoming, to Cushing.

Enbridge’s (ENB) Flanagan South pipeline project, which runs from Flanagan, Illinois, to Cushing, also began shipments earlier in December 2014.

Some of the midstream companies mentioned here are components of the Alerian MLP ETF (AMLP). The ETF is a great way to play the booming energy infrastructure sector.

Continue to the next part for an analysis of movements in crude prices in the past week.


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