Cushing inventory trends
The EIA (U.S. Energy Information Administration) reported that Cushing crude oil inventories increased by 123,000 barrels to 56.37 MMbbls (million barrels) in the week ended June 26.
What this means
The increase in Cushing crude oil inventories last week is bearish for WTI (West Texas Intermediate) crude oil prices. This, in turn, is negative for US crude oil producers such as Hess Corporation (HESS), Chevron Corporation (CVX), ConocoPhillips (COP), and Anadarko Petroleum (APC). All these companies are components of the iShares U.S. Energy ETF (IYE). They make up 19.5% of the fund.
Cushing, Oklahoma, is the delivery point for NYMEX (New York Mercantile Exchange) crude oil futures contracts. A buildup of inventories at Cushing pressures WTI crude oil prices downward and vice versa.
2015 versus 2014 inventories
Crude oil stocks at Cushing had been rising continuously since November 2014. In the week of April 24, inventories fell for the first time in almost six months. They’ve been consistently falling since. They snapped that declining streak by increasing 0.1 MMbbls in the week of June 12, but they reversed course to decline again in the week of June 19 week. They continued their see-saw movement by rising again in the week of June 26.
Earlier in 2014, inventories 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 oil to move out of Cushing. That included TransCanada’s (TRP) two major pipelines—Keystone Pipeline and Cushing Marketlink Pipeline, Magellan Midstream Partners’ (MMP) Longhorn Pipeline, and the joint-venture Seaway Pipeline operated by Enterprise Products Partners (EPD) and Enbridge (ENB).
What reversed the trend?
Just as new pipelines helped drain crude oil from Cushing, some new pipelines also helped bring more crude oil into Cushing and refill stocks there. This occurred mostly in the latter part of 2014. One of the pipelines was the Pony Express operated by Tallgrass Energy Partners (TEP). Another was Enbridge’s (ENB) Flanagan South Pipeline Project, which runs from Flanagan, Illinois, to Cushing, Oklahoma. It started shipping crude oil in December 2014.
In the next part of this series, we’ll discuss gasoline inventories.