Every week, traders far and wide watch inventories at the storage hub of Cushing, OK, for insight into the U.S. crude oil market. Cushing has long been the epicenter for crude trading in the U.S., and while that role has shifted as the Gulf Coast gains more prominence, inventories at the Oklahoma hub are still a valuable indicator for traders looking for supply and demand trends. Recently, we’ve seen Cushing stocks drop significantly, declining for 11 straight weeks since the beginning of July to their lowest levels since last Thanksgiving. Today, we review the recent drop at Cushing, and discuss how a few changes in supply and demand fundamentals, plus strong pricing motives, helped drag down stockpiles this summer.
Every Wednesday — or Thursday if there’s an early-in-the-week holiday — the Energy Information Administration (EIA) releases its Weekly Petroleum Status Report. Included in that data is an assessment of U.S. crude oil production, refining demand, exports, and imports, along with a bunch of other information relevant to domestic oil and oil-products markets. We cover this data in-depth each week in our Crude Oil Gusher report. One of the most closely watched statistics in the EIA data is Cushing crude oil inventories. Cushing is a critically important piece of the U.S. oil market given its long history as the trading center of the U.S., plus the hub’s role as a key distribution point for Canadian, Rockies and Midcontinent barrels making their way to Midwest markets or to the Gulf Coast. Cushing’s pipeline connectivity and storage capacity are unrivaled, something we covered in-depth in our last big Cushing Drill Down. Traders spend a lot of time — and often a lot of money — trying to predict whether Cushing inventories will rise or fall. There’s a whole industry dedicated to monitoring Cushing’s tanks (geospatially or by other means) because predicting storage volumes can help traders make profits off Wall Street deals. Decreasing volumes in storage at Cushing often mean that crude prices will likely rise, while increasing volumes at the hub have the tendency to pull prices down. This is all obviously done in context with whatever else is roiling markets that week, but Cushing inventories carry a lot of weight on their own.
This spring and summer, we’ve seen Cushing inventories go on a roller coaster ride. In early April 2019, stocks at the hub started steadily increasing. Inventories were 44.449 MMbbl on April 12, rising to a peak of 53.582 MMbbl in mid-June. At the time, growth in U.S. crude oil production was front and center on everyone’s mind. There was chatter that rising output in the Permian, Bakken and elsewhere could force more and more barrels into Cushing, with some folks wondering whether inventories might test recent highs at the trading hub (inventories at Cushing surpassed 64 MMbbl in November 2017; total storage capacity at the hub is estimated around 94 MMbbl). But just as inventories rose to nearly 54 MMbbl three-plus months ago in mid-June, they started dropping. We saw a 1.746-MMbbl drop in the week ending June 21, a small build in the week ending June 28, and then a constant slide since the week ending July 5. Since then, we’ve seen 11 consecutive weeks of declines, with crude inventories dropping from 52.178 MMbbl down to 38.681 MMbbl in the most recent data from the EIA for the week ending September 13. Those draws at Cushing have largely moved in tandem with declines in overall crude inventories (including storage in the Rockies, Midwest, West Coast and Gulf Coast), and have helped give some support to West Texas Intermediate (WTI) prices in an otherwise volatile price environment.