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A must-read overview of Cushing inventories in the past year

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Mar. 13 2015, Updated 4:06 p.m. ET

Why Cushing inventories declined considerably in 2014.

Inventories have taken a reverse trend in 2015 compared to 2014, when they had actually been declining as the year progressed (see the graph below) before inching upwards

As new infrastructure came online, inventories at Cushing had been in 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 MMbbls at the end of July 2014. Currently, stocks rebounded to 49.2 million barrels per day, or 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 have 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, which Tallgrass Energy Partners (TEP) operates. This pipeline 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 inching closer to the previous record-high levels seen in January 2013 (see Part 6 of this series). One of the main reasons for the high inventory numbers is also record US production.

EPD and MMP are part of the Alerian MLP ETF (AMLP). They make up ~17.5% of the ETF.

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

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