Just My Imagination - How Full Is Cushing Crude Oil Storage Capacity, Really?

The Mid-Continent trading and storage hub at Cushing, OK is the nation’s largest commercial crude tank farm – with an estimated 73 MMBbl of working storage capacity according to the Energy Information Administration (EIA). The latest weekly EIA Petroleum Supply report (January 29, 2016) indicated inventory levels at Cushing just over 64 million barrels – 24 thousand barrels below the all-time high set two weeks previously. That is only 88% of working capacity by some calculations that indicate there is still room in the tanks for more crude. Yet market sources report that some storage operators are turning away incoming barrels. Today we examine what may be happening.

We have previously discussed inventory levels at Cushing in the context of the big run up in crude stocks during 2011 and 2012 to a then record of 52 MMBbl in January 2013. Those soaring stocks resulted from a build-up of “stranded” crude in the Midwest from surging shale production, mostly from North Dakota, that was surplus to regional refinery needs and could not reach Gulf Coast refineries due to a lack of pipeline capacity south from Cushing (see Texas Bound). That stockpile ran down during 2013 and 2014 as new pipeline capacity opened up to the Gulf Coast – bottoming out at 18 MMBbl in July 2014 (according to EIA).  In October 2014 Cushing inventories started climbing again - this time in response to an oversupplied market with falling crude prices creating a “contango” incentive to store crude. In a contango market, prices for future delivery are higher than for delivery today – providing a financial incentive to store crude and sell it for a higher price later as we described in “Skipping The Crude Contango”. A U.S. refining frenzy in response to high margins last summer brought crude stocks down between April and October 2015 (see Fly Me To The Moon) but they have recovered since to hit an all time high on January 15, 2016 at 64.2 MMBbl. The record crude inventory levels are not just at Cushing. The EIA reported that total U.S. crude commercial inventories surpassed 500 MMBbl for the first time ever on January 29, 2016, with over half that number stored in the Gulf Coast region (253 MMBbl).

These crude inventory levels are high enough that questions are being raised about how much more the tanks can hold. This is particularly the case at Cushing – where by one calculation – crude inventory is at 88% of working capacity – just 9 MMBbl below capacity.  What follows is our interpretation of how full the tanks at Cushing could be.

According to our friends at Genscape who monitor Cushing tank levels and report inventory estimates twice a week - there are 16 storage owners at Cushing with the larger players being midstream companies such as Plains All American, Enbridge, Enterprise Products Partners and Magellan Midstream. Some of the best publically available information about storage capacity at Cushing comes from the biannual EIA Working and Net Available Storage Capacity Report. The latest survey published in November 2015 has data as of the end of September 2015. At that time EIA estimated that 17% of Cushing storage was used by the owners and that 83% was leased out to third parties. It is important to note that most of that third party storage capacity is leased out under long-term (5 years or more) contracts. The EIA survey provides two numbers that help us estimate how much storage is available. These are the Net Available Shell Capacity and the Working Storage Capacity. The two terms refer to how much of an oil storage tank is theoretically available to store oil and how much of the available capacity is actually usable to store oil. The schematic in Figure #1 – based on an EIA original - shows the structure of a typical crude oil tank and how its space is determined. Using the concepts in the schematic and EIA numbers we tried to understand exactly how much storage capacity could still be available at Cushing – given the current high inventory levels. There are roughly 400 active tanks at Cushing (Genscape) so this analysis is a “back of the envelope” guestimate at best - since we base the calculations on the characteristics of one “typical” tank.