Rise of Crude Oil Supplies in Cushing Pipeline

Rise of Oil Supplies in Cushing Pipeline: Energy Markets

According to a survey of Bloomberg News, United States crude oil stockpiles hiked for five weeks as an extension of the pipeline to Cushing, Oklahoma was completed by TransCanada Corporation, adding to the country’s largest oil-trading hub. Inventories rose by 2.1 million barrels, or 0.7%, in six days ending Feb. 10, from 345.4 million the previous week. These figures are according to the estimates of a team of 13 analysts out of which 12 forecast an increase while one projects a decline.

As per Energy Department, stockpiles at Cushing, which is a point of delivery for New York and traded on the West Texas Intermediate, hiked to its peak level since 2004 in the week ended Jan. 28. In a subsequent phase of the Keystone pipeline project, TransCanada has started its deliveries on Feb 7 to the hub.  Carl Larry, president of Oil Outlooks & Opinions LLC in Houston, said, “We would soon be able to see a rise in inventories at Cushing.” The beginning phase of the project, worth $12 billion, from Alberta, Hardisty to Patoka and Wood River, Illinois, started its service in mid-2010. This link operates at about 455,000 barrels per day, as said by Paul Miller, senior Vice President for oil pipelines at TransCanada.

The third phase in the project focuses on expansion in the Gulf Coast called Keystone XL, which may be under operation by the beginning of 2013 if approved by regulators. The XL extension will be from Cushing to Nederland, Texas, which would link the Gulf refineries to oil sands in Canada.

The terminal operators, including The Gavilon Group LLC, Plains All American Pipeline LP and Magellan Midstream Partners LP, have already announced plans for building 15 million barrels of additional oil storage capacity in Cushing by end of 2011. This would heighten capacity by as much as 30% at the hub from an existing 56 million barrels. The delivery of crude oil in March declined by 48 cents, or 0.5 percent, to $84.30/barrel on the New York Mercantile Exchange, the lowest settlement price since Nov 30.

Brent Rises

WTI prices have been depressed by the Cushing pipeline in comparison to London’s Brent oil index.  Brent declined by $1.46, or 1.5 percent, to $101.68/barrel on the London based ICE Futures Europe exchange. At $104.35, it touched the highest price in a single day since September 25, 2008. In the same month, The April “Brent premium” to New York was $14.09 a barrel, according to data by Bloomberg News. “An influx of imports would be seen continuously from Canada,” said John Kilduff, a partner at Again Capital LLC. Since the last decade as oil was costly in New York, the US imported North Sea barrels.

Imports of crude oil slipped 1.3 percent to 8.94 million barrels per day in the week that ended on Feb. 4, as per the Energy Department. During the first 10 months of the past year, the US had imported 1.95 million barrels a day on average from Canada, the most by any country.

Overstocked

“We have surplus stocks of oil,” said Tim Evans, an analyst of energy at Citi Futures Perspective in New York. “We are at the point of seeing a seasonal rise in stocks of crude oil which typically won’t end until May.”

Nationwide, stockpiles of crude oil climbed to 11.8 million barrels in the four weeks that ended on Feb. 4, the biggest gain since March, as shown by department figures. Refineries probably have operated at 84.6 percent of their capacity, according to a survey by Bloomberg. Utilization rates have slipped in the previous three out of five weeks. “There should be rise in stockpiles as the run rates of refineries are low,” Kilduff said.

‘Remove Justification’

The stockpiles of gasoline increased 1.82 million barrels, or 0.7 percent, from 240.6 million, a survey showed. There has been an increase in all supplies; in one of the past 12 reports, they surged to the highest levels since March 1990, in the week that ended on Feb. 4. The estimate was given by 14 respondents out of which 13 projected a gain and one said there would be a drop in supplies. “We will perhaps end with immense surplus as the demand for gasoline rises this summer and will remove the need for justification for price increases in the coming months,” Evans said. Distillate fuel supplies, which include heating oil as well as diesel, apparently slipped to 401,000 barrels, or 0.4 percent, from 164.8 million, as shown by the survey. Ten analysts predicted a decline; three anticipated an increase while one opted for no change. The weekly report of the department will be released at 10:30 a.m. in Washington tomorrow as per the schedule.

- Chris Termeer

Chris Termeer

Chris Termeer is an oil and gas consultant, industry commentator and analyst. His book, Fundamentals of Investing in Oil and Gas provides a comprehensive overview of all aspects of the oil and gas industry, including exploration, drilling, production, storage, transportation and refining, to name but a few.

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