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Inventory Gains at Cushing Slowed the Week Ending April 17

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Nov. 20 2020, Updated 12:29 p.m. ET

Cushing trends last week

The EIA (Energy Information Administration) reported Cushing inventories increased 740,000 barrels to 62.2 million barrels in the week ending April 17. These levels are the highest in EIA data since April 2004.

Crude stocks at Cushing have risen continuously since October 2014. Until March this year, Cushing inventories on an average increased by ~2.2 MMbbls per week. Since April, however, the pace of this increase has slowed. If this trend continues, and the current upward trend is reversed, it could be a much-needed boost for WTI prices. Surging inventories at Cushing had been a major cause of concern for WTI prices.

However, Cushing has about 71 million barrels of crude storage, according to the EIA. Current levels are ~87% of the storage capacity. The highest utilization record at Cushing was 91%, set in March 2011.

If inventories continued to increase even at a reduced pace, they could still bump up against capacity. This would pressure oil prices downward. On the other hand, if a slowing of the build is the beginning of a turn in the current upward trend, it would be bullish for WTI prices.

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Recent trends in Cushing inventories

Unlike 2015, inventories in 2014 consistently fell before turning upward toward the latter part of the year. The decline in 2014 was mostly a result of new infrastructure coming online, which enabled more crude to move out of Cushing.

New infrastructure included TransCanada’s (TRP) Keystone XL Pipeline and the Cushing Marketlink Pipeline. Also included were Magellan Midstream Partners’s (MMP) Longhorn Pipeline, as well as Enterprise Products Partners’s (EPD) and Enbridge’s (ENB) joint venture Seaway Pipeline.

EPD and MMP make up ~18% of the Alerian MLP ETF (AMLP), while TRP and ENB make up 6% of the First Trust North American Energy Infrastructure Fund (EMLP).

What reversed the trend?

Just as new pipelines helped drain crude from Cushing, some new pipelines also helped bring in more crude into Cushing and refill stocks there. This occurred mostly in the latter part of 2014.

One of these pipelines is the Pony Express operated by Tallgrass Energy Partners (TEP). Enbridge’s Flanagan South Pipeline Project runs from Flanagan, Illinois, to Cushing. It started shipping crude in December 2014.

Background

Cushing, Oklahoma, is the delivery point for NYMEX (New York Mercantile Exchange) crude futures contracts. A buildup of inventories at Cushing pressures WTI (West Texas Intermediate) crude prices downward and vice versa.

Read Market Realist’s Energy and Power page for the latest updates on the energy sector.

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