Exports rose by 350 Mb/d to 4.1 MMb/d last week, bouncing back from the first dip below 4 MMb/d since October 6. We could soon see a surge in crude exports as traders seek to avoid high year-end taxes on inventories. This is because in Texas and Louisiana, annual ad valorem taxes are imposed on crude oil inventories at the end of December. These taxes, coupled with the practice of valuing assets using the last-in, first-out (LIFO) accounting method, incentivize companies to draw down their crude oil stocks to minimize tax liability. When oil prices have risen over the year, there is a stronger motivation to reduce inventory and lower tax exposure. Conversely, if oil prices have declined throughout the year, companies have less incentive to reduce the amount of crude held in storage. If crude doesn’t exit the Gulf Coast for the water, we could also see increases to Cushing inventories. This is because the end-of-year tax rate for crude oil in storage in Texas is 2.5% to 2.75%, but only 1% in Oklahoma. Now it probably doesn’t make financial sense to move crude up from the Permian to Cushing because of shipping and storage costs, but Cushing inventories could rise as owners of crude oil park their barrels there for a few weeks instead of sending them down to the coast.
Featured Articles
Give and Take - How the Forward Curve Influences Storage Volumes at the Critical Cushing Oil Hub
The small town of Cushing, OK, occupies a central place in the U.S. crude oil market thanks to its hundreds of storage tanks and numerous pipeline connections. And while it might seem far removed from the factors that influence the global crude market, what happens elsewhere directly impacts the storage volumes at Cushing. In today’s RBN blog, we review the critical role that Cushing plays in crude oil storage, show how the forward curve can influence inventories, and look at what might be behind the recent uptick in storage levels, which followed a four-month slide.
Tops Drop, Part 2 - Cushing's Running Low on Crude Oil. How Much is Left In the Tanks?
The world is in desperate need of more crude oil right now and anybody with barrels is scouring every nook and cranny for any additional volume that can be brought to market. Some of that may come from increased production, but the oil patch is a long-cycle industry, just coming off one of the most severe bust periods ever, and it will take time to get all the various national oil companies, majors, and independents rowing in the same direction again. For now, part of the answer will be to drain what we can from storage — after all, a major purpose of storing crude inventories is to serve as a shock absorber for short-term market disruptions. To that end, the U.S. is coordinating with other nations to release strategic reserve volumes to help stymie the global impact of avoiding Russian commodities. Outside of reserves held for strategic purposes though, commercial inventories have already been dwindling as escalating global crude prices have been signaling the market to sell as much as possible. Stored volumes at Cushing — the U.S.’s largest commercial tank farm and home to the pricing benchmark WTI — have been freefalling for months, which raises the question, how much more (if any) can come out of Cushing? In today’s RBN blog, we update one of our Greatest Hits blogs to calculate how much crude oil is actually available at Cushing.
This Place Is Empty - Is It Time to Panic Over Falling Cushing Oil Inventories?
Crude oil inventories at Cushing have been in a free fall. After last peaking at more than 69 MMbbl in April 2017, stockpiles have decreased to less than 22 MMbbl recently, nearing all-time lows for tank utilization at the Oklahoma crude-trading hub. While we’ve seen volumes drop quickly in the past, inventories have now declined for 12 straight weeks at a staggering pace. Traders, refiners, and other market participants are starting to fret. Is this just another cyclical trend or are market factors exacerbating the impact? Today, we examine the influence of historical pricing trends on Cushing inventories and why it seems that demand factors are speeding up the drop.
Comments
Taxpayers in TX can apply for an interstate foreign commerce exemption with the local county appraisal district (CAD), which effectively trumps the state ad valorem inventory storage property tax laws. However, the CAD will certainly push back and force the applicant to produce documents showing that the sale occured before year-end (demonstrating commitment to a foreign location) and that the export actually occured within the first few months of the new year. Lots of hoop jumping and paper pushing, but well worth it for significant amount of bbls being shipped out of the country.