EIA Reports Bearish Crude Inventory Data Last Week – What Does It Mean? (Part 5 of 5)
(Continued from Part 4)
Cushing trends last week
Last week, Cushing inventories increased ~1.23 million barrels to 60.1 million barrels. These levels are the highest in EIA data since April 2004.
Crude stocks at Cushing have continuously been rising since October 2014.
To put things into perspective, according to the EIA, Cushing has about 71 million barrels of crude storage. Current storage is about ~85 % of the storage capacity, according to the EIA. The highest utilization record at Cushing was 91%, set in March 2011.
Cushing, Oklahoma, is the delivery point for NYMEX (New York Mercantile Exchange) crude futures contracts. Inventory levels at Cushing reflect the pace that the increasing US oil supply is moving from major inland production areas, such as the Bakken and the Permian, to major refining hubs on the Gulf Coast.
A buildup of inventories at Cushing pressures WTI (West Texas Intermediate) crude prices downward and vice versa.
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 Cushing Marketlink Pipeline. Also included were Magellan Midstream Partners’ (MMP) Longhorn Pipeline and Enterprise Products Partners’ (EPD) and Enbridge’s (ENB) joint venture Seaway Pipeline.
What reversed the declining trend in 2015?
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 the pipelines is the Pony Express operated by Tallgrass Energy Partners (TEP). Enbridge’s (ENB) Flanagan South Pipeline Project runs from Flanagan, Illinois, to Cushing. It started shipment earlier in December 2014.
The bottom line
If inventories at Cushing reach capacity, oil prices could tumble further. That would, in turn, hurt the margins of companies such as Marathon Oil (MRO), Murphy Oil (MUR), Hess Corporation (HES), and Apache Corporation (APA). All these companies are components of the Energy Select Sector SPDR ETF (XLE) and make up 5% of the fund.
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