As storage levels at the US pricing and delivery hub of Cushing, Oklahoma continue to swell, the immortal words of Yogi Berra come to mind.
“It’s déjà vu all over again and it looks like it’s happening,” Lipow Oil Associates president Andy Lipow told the Argus Crude Summit in Houston last week. “Cushing could physically once again get overwhelmed if production continues to rise and rise quickly.”
As if on cue, Plains All American Pipeline president Harry Pefanis said on an earnings call this week that Cushing inventories will be full in two months, which could “normalize” differentials.
“Once storage gets full at Cushing you should see differentials normalize again,” allowing rail to take crude to highest-price markets, Pefanis said. “Cushing’s going at a higher rate. In two months it’ll be full.”
Brimming Cushing inventories were a prime mover behind the blowout in the WTI-Brent spread. Cushing inventories hit an all-time high of 51.9mn bl in January of 2013 ahead of the start up of the 700,000 b/d Gulf Coast pipeline to the Nederland, Texas, area that helped relieve a build-up of crude. The Brent-WTI spread at one point topped $20/bl as US crude production surged and inventories piled up in Cushing, leading to a large disconnect between WTI and Brent. The spread has narrowed to about $6/bl on 6 February.
Amid surging US crude production and new pipeline capacity to Cushing, crude is sloshing around in the midcontinent again with fewer options to reach the Gulf coast. Cushing inventories rose by 2.5mn bl to 41.4mn bl, the highest level since January 2014, in the latest data from the Energy Information Administration.
Lipow counts at least 22 inbound pipes to Cushing totaling 3.9mn b/d in capacity, with only two new pipelines announced to move oil out of Cushing: the 450,000 b/d Seaway pipeline and Plains All American’s 200,000 b/d Diamond pipeline to Memphis, Tennessee.
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