Monday, February 8, 2016

Monday, February 9, 2016 -- A Great Game, Yesterday

Active rigs:

Active Rigs42136192185202

RBN Energy: storage capacity at Cushing (archived).
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. 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.
A U.S. refining frenzy in response to high margins last summer brought crude stocks down between April and October 2015 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.
I didn't see all the Super Bowl ads, but I saw most of them. T-Mobile and Steve Harvey might have been the #1, certainly in the top five:

T-Mobile - Steve Harvey

And, now for something a little different:

Le Petit Chef

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