2014 lows in Cushing inventories
Inventories have taken a reverse trend in 2015 compared to 2014. In 2014, inventories had been declining as the year progressed, before turning upwards towards the later part of the year. As the graph below shows, inventories touched their lowest level in about six years in 2014.
New outward infrastructure
The decline in 2014 was mostly a result of new infrastructure coming online, which enabled more crude to move out of Cushing.
The new infrastructure included TransCanada’s (TRP) Keystone XL Pipeline, the Cushing Marketlink Pipeline, Magellan Midstream Partners’ (MMP) Longhorn Pipeline, and Enterprise Product Partners’ (EPD) and Enbridge’s (ENB) joint venture Seaway Pipeline. EPD and MMP make up ~17.5% of the Alerian MLP ETF (AMLP).
Also, the new Seaway Twin Pipeline started functioning on December 21, delivering crude to Jones Creek in Texas. The pipeline more than doubled the original pipeline’s capacity from Cushing to the Gulf Coast.
As a result of these pipelines, refiners from the Gulf Coast sucked crude supplies from Cushing down to as low as ~17.9 million barrels at the end of July 2014. Currently, stocks have rebounded to ~59 million barrels.
What reversed the declining trend in 2015?
While new pipelines helped drain crude from Cushing, some new pipelines also brought crude into Cushing and helped refill stocks there, mostly in the later part of 2014. One of these pipelines is the Pony Express, which is operated by Tallgrass Energy Partners (TEP). The 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 in December 2014.
One of the main reasons for the high inventory numbers is also record US production. Although production decreased last week, as we discussed in part two of this series, it is still at elevated levels. So, increasing supplies, even at a reduced rate, is a negative for crude prices given Cushing’s limited capacity.
In the next part of this series, we’ll discuss the EIA’s global oil supply-demand projections.