Blog January 04, 2016

Crude inventories at Cushing, OK, reached an all-time high for the week ending January 1, 2016, surpassing the previous all-time high set April 14, 2015, by nearly 347,000 bbls, according to Genscape.

West Texas Intermediate (WTI) prices fell $1.65/barrel to $36.60/barrel in the first two hours after the report in reaction to the growing Cushing supply, according to the NYMEX Light Sweet Crude Oil futures contract, which has a locational basis of Cushing.

NYMEX Light sweet crude oil (WTI) February

The most recent record high was due in part to increasingly favorable storage economics in connection with a widening 12-month price contango structure for WTI, as reflected in the NYMEX crude futures contract. In addition, year-end tax reduction strategies added incentive to move crude into storage tanks at Cushing. The April 2015 storage high was also reached when the WTI price was in a 12-month contango structure.

Capacity utilization at Cushing is currently two percent below the all-time high set in March 2011. Since that time, close to 32mn bbls of storage capacity has been added to the storage hub.

Seven operators at the Cushing tank farm are now above 80 percent capacity utilization, indicating that most of their storage volumes are likely merchant, or leased to others, rather than operational. Genscape considers 80 percent capacity utilization to be an operational maximum.

These seven owners, representing 31.184mn bbls of operational capacity in total, have only 4.745mn bbls of available capacity. Four terminals are currently 70 to 80 percent full with only 6.302mn bbls of remaining capacity.

The final five terminals that are still below 70 percent utilization represent just 32 percent of Cushing’s total capacity and have 9.473mn bbls of capacity available for storage. The available capacity amount does not account for operationally necessary empty space (for blending, pipeline operations, etc.) or contingency tank top space.

At this time, three different companies are expanding their storage infrastructure at Cushing with a combined 1.93mn bbls of capacity under construction. All of these projects are expected to be online by the end of Q1 2016. Currently, 2.276mn bbls of storage capacity is in maintenance. Tanks returning from maintenance could add incremental space in the interim.

Cushing Capacity UtilizationIn the past seven years since Genscape began monitoring Cushing storage in 2009, capacity utilization there has increased between November and December every year except for in 2011. At the end of 2011, the WTI price structure was in backwardation, which resulted in an end of year storage draw.

Year-end ad valorem taxes are assessed on crude in storage. These taxes, along with the generally accepted accounting practice of last-in, first-out (LIFO) method used to value the assets, create an incentive to draw down crude stocks in Texas and Louisiana at the end of the year in order to reduce the tax bill, according to the U.S. Energy Information Administration. Historically, this has resulted in decreased November to December PADD 3 stocks and, due to infrastructure connections, increased November to December Cushing stocks.

Genscape's Cushing storage data is collected using infrared cameras, aerial diagnostics, and other proprietary measurement techniques. This approach translates into highly accurate, advance notice of the actual oil storage levels at Cushing. To learn more or request a free trial of Genscape's Cushing Crude Oil Storage Report, please click here.