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Week Ended October 30: Cushing Inventories Fell 3 Weeks in a Row

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Cushing crude oil inventories

The EIA (U.S. Energy Information Administration) reported that Cushing crude oil inventories fell by 212,000 barrels to ~53.1 MMbbls (million barrels) in the week ended October 30, 2015. That was the third weekly fall in Cushing inventories.

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What does this mean?

The fall in Cushing inventories could be bullish for WTI (West Texas Intermediate) crude oil prices. Higher crude oil prices (USO) could be positive for crude oil producers such as Apache (APA), Diamondback Energy (FANG), Energen (EGN), and Oasis Petroleum (OAS), as they get higher prices for their domestic production. All these companies are part of the Vanguard Energy ETF (VDE) and account for ~2% of the fund.

However, as we saw in Part 1, crude oil prices ignored the bullish Cushing inventory number and focused more on the bearish headline inventory number.

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.

2014 versus 2015 inventories

Cushing inventories rose continuously from November 2014 until the week ended April 24, 2015, when inventories fell for the first time in almost six months. They fell consistently after that until they broke the downward streak in the week ended June 12. Since then, they have fluctuated a bit. Recently, as we saw above, inventories fell for the third straight week.

Earlier in 2014, inventories fell consistently before turning upward in the latter part of the year. The fall in 2014 was mostly a result of new infrastructure coming online that enabled more crude oil to move out of Cushing.

New infrastructure 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 to refill inventories 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. It runs from Flanagan, Illinois, to Cushing, Oklahoma, and started shipping crude oil in December 2014.

In the next part of this series, we’ll take a look at gasoline inventories.

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