Cushing inventories declined considerably in 2014
Inventories have followed a reverse trend in 2015 compared to 2014. In 2014, inventories had been declining as the year progressed (see the graph below) before inching upwards towards the later part of the year. They touched their lowest level of about six years in 2014.
The decline in 2014 was mostly a result of new infrastructure coming online. As new infrastructure came online, it enabled more crude oil to move out of Cushing.
The new infrastructure included TransCanada’s (TRP) Keystone XL Pipeline and Cushing Marketlink Pipeline, Enterprise Product Partners’ (EPD) and Enbridge’s (ENB) joint venture Seaway Pipeline, and Magellan Midstream Partners’ (MMP) Longhorn Pipeline.
As a result of these pipelines, refiner demand from the Gulf Coast sucked crude oil supplies from Cushing down to as low as ~17.9 MMbbls at the end of July 2014. Currently, stocks have rebounded to 56.3 million barrels.
Also, the new Seaway Twin Pipeline started running. On December 21, it delivered crude oil to Jones Creek, Texas. The pipeline more than doubled the original pipeline’s capacity from Cushing to the Gulf Coast.
What factors have helped Cushing inventories reverse their declining trend in 2015?
While new pipelines helped drain crude oil from Cushing, some new pipelines also brought crude into Cushing and helped refill inventories there—mostly in the later part of 2014. One of these pipelines is the Pony Express. It’s operated by Tallgrass Energy Partners (TEP). It brings Bakken crude oil from Guernsey, Wyoming, to Cushing.
Also, Enbridge’s (ENB) Flanagan South Pipeline Project runs from Flanagan, Illinois, to Cushing. It started shipments in December 2014.
Another of the main reasons for the high inventory numbers is record US production. Inventories beat the previous record-high from January 2013 in the week ended March 13. For the week ended March 20, inventories set another record high (see Part 6 of this series).
EPD and MMP are part of the Alerian MLP ETF (AMLP), and they make up ~17.5% of the ETF.
In the next part of this series, we’ll discuss the movements in crude oil prices last week.