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Oklahoma Swing - Cushing: Still the U.S.'s Preeminent Crude Oil Hub

The Cushing, OK, storage and trading hub plays critically important roles in both the physical and financial sides of the crude oil market. Located at a central point for receiving crude from a wide range of major production areas — Western Canada, the Bakken, the Rockies, SCOOP/STACK and the Permian among them — the hub also has numerous pipeline connections to Gulf Coast refineries and export docks, and to a large number of inland refineries. And, with Cushing’s 94 MMbbl of storage capacity and status as the delivery point for NYMEX futures contracts for West Texas Intermediate, the hub’s inventory levels and the WTI-at-Cushing price are closely watched market barometers. But like a lot of other U.S. energy infrastructure in the Shale Era, Cushing’s place in the energy world has been in flux. Most importantly, Permian production has been surging, the ban on U.S. oil exports is a fading memory, and the Gulf Coast — not Cushing — is where most U.S. crude production wants to go. Today, we discuss Cushing’s changing role and highlights from RBN’s new Drill Down Report on the U.S.’s most important crude hub.

As we said a few months ago, the Cushing hub would qualify as one of the Seven Wonders of the Energy World — if there were such a list. The hub’s 3.7 MMb/d of inbound pipelines, 350-plus storage tanks, countless connecting pipes within the hub, and 3.1 MMb/d of outbound pipelines are the result of hundreds of individual decisions by scores of midstream companies over many decades.

The past few months have provided a reminder of Cushing’s important role. For an extended, two-and-a-half-year period — from April 2015 through October 2017 — the volume of crude stored at the hub stayed in a relatively narrow range, within 10% or so of 60 MMbbl, according to the Energy Information Administration (EIA; see Figure 1). Inventory stability typically is seen as an indicator of a well-balanced WTI market. From November 2017 to March 2018, however, storage levels plummeted by more than half — from 64 MMbbl to 28 MMbbl — and after a modest uptick this past spring, the volumes stored fell again to as low as 22 MMbbl in parts of July, August and September.

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