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Cushing Stocks Fall Again but Are Far Higher than 2014 Levels

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Cushing inventory trend

The EIA (U.S. Energy Information Administration) reported that Cushing crude oil inventories (or stocks) decreased slightly, by 51,000 barrels to ~57.11 MMbbls (million barrels) in the week ended August 7. Inventories had risen four weeks in a row until July 24, when they declined for the first time in almost a month. The recent decline for the week ended August 7 marks the third consecutive decline in Cushing inventories.

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What this means

The decrease in Cushing inventories is bullish for WTI (West Texas Intermediate) crude oil prices. This, in turn, is positive for US crude oil producers such as Chevron Corporation (CVX), Apache Corporation (APA), ConocoPhillips (COP), and Murphy Oil (MUR), which will get higher prices for their domestic production. All these companies are components of the iShares U.S. Energy ETF (IYE). They make up ~17% of the fund. As we saw in Part 3 of this series, WTI rose on August 12. The drop in Cushing inventories may also have played a hand in this increase.

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

Cushing inventories had risen continuously since November 2014. In the week ended April 24, 2015, inventories fell for the first time in almost six months. They had been consistently falling since then. They snapped that declining streak in the week ended June 12 but reversed course to decline again in the week ended June 19. They had increased for four consecutive weeks since then, from June 26 to July 17, adding ~1.7 million barrels of crude oil back to inventories at Cushing. As we saw above, inventories have since declined three weeks in a row, by a cumulative ~593,000 barrels. However, Cushing inventories are still ~217% or 39.13 MMbbls higher compared to levels of ~17.98 MMbbls in the same week last year.

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Earlier in 2014, inventories consistently fell before turning upward towards 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, the Keystone Pipeline and the 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 to 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.

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