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.
Cushing inventories, a leading benchmark for U.S. crude oil stockpile analysis, are measured weekly as part of the Energy Information Administration’s (EIA) Weekly Petroleum Status Report. Stockpiles at Cushing averaged just under 65 MMbbl from 2016 through the beginning of 2017. Inventories ramped up to 69.4 MMbbl in April 2017 (Figure 1 below), an all-time high for volume at the trading hub. That high was quickly followed by a sharp drop, then a rebound towards 64 MMbbl in October 2017. But since October, we’ve seen an almost relentless decline in crude inventories at Cushing, with stocks falling 30 out of the last 42 weeks and for the last 12 weeks straight.
Most of the time, the overall inventory numbers at Cushing don’t move up or down long enough to attract a lot of attention. When production upstream of the hub swells, we can start to see builds. And when Gulf Coast demand rises or Midwest refiners are running at top utilization, we’ll typically see draws. But when inventories are hovering around a manageable average (like mid-2016), we tend to view stockpiles at the “Pipeline Crossroads of the World” as an indicator for the WTI supply/demand balance and thus prices — but not as a source of market consternation.
Where things really start to get interesting — and what’s currently keeping Midcontinent traders up at night — is the current scenario of crude inventories inching towards the bottom of their tanks. Recent footage of Cushing, in the video below, gives you a sense for just how low we’ve gotten.