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Analyzing movement in Cushing inventories in the past year

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Mar. 17 2015, Updated 11:05 p.m. ET

Why Cushing inventories declined considerably in 2014

Inventories took a reverse trend in 2015—compared to 2014 when they actually declined as the year progressed. Inventories inched upwards towards the later part of the year. They touched their lowest level in about six years in 2014.

As new infrastructure came online, inventories at Cushing had been on a declining trend for the better part of 2014. This enabled more crude to move out of Cushing.

The new infrastructure included 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 included Cushing’s 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 million barrels per day, or MMbbls, at the end of July 2014. Currently, stocks rebounded to 48.68 MMbbls/d.

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

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What factors slowed down the declining trend in 2015?

New pipelines helped drain crude from Cushing. The new pipelines also brought more crude to help refill stocks there—mostly in the later part of 2014. One of the pipelines is the Pony Express. It’s operated by Tallgrass Energy Partners (TEP). It brings Bakken crude from Guernsey, Wyoming, to Cushing.

Also, Enbridge’s (ENB) Flanagan South Pipeline Project runs from Flanagan, Illinois, to Cushing. It started shipment earlier in December 2014.

Inventories are now reaching levels close to the previous record high levels seen at the beginning of 2013—refer to Part 6 in this series. One of the main reasons for the high inventory numbers is also record US production.

Some of the midstream companies mentioned here are part of the Alerian MLP ETF (AMLP). They account for ~17.5% of AMLP.

In the next part of this series, we’ll discuss the movements in crude prices in the past week.

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