(Bloomberg) — Oil storage tanks at a key U.S. crude hub have emptied nearly to their bottoms as a massive new pipeline in Canada diverts flows elsewhere, clouding the market signals traders have long relied on.
Most read from Bloomberg
Inventories in Cushing, Oklahoma, have declined over the past four months and are now near a 10-year low for this time of year. Market participants say the downturn – which typically occurs when fuel demand rises during the driving season – was exacerbated this year as the expanded Trans Mountain pipeline shifted Canadian oil supplies to the country’s Pacific coast and away from the U.S. Gulf Coast.
The expanded pipeline has carried about 400,000 barrels of crude oil per day since it started in May, and Cushing’s tanks have lost nearly 13 million barrels of oil in that period. Flows of Canadian crude to the U.S. Gulf Coast have slowed to the point where a competing pipeline system, owned by Enbridge Inc., has operated largely without the congestion it typically experiences during the U.S. summer driving season.
European demand for U.S. crude is also pulling barrels from storage in Cushing, traders said, especially as buyers hunt for similar grades after supply disruptions in Libya.
“Given the risks to Libya, I’m inclined to think that in the short term, storage will remain at the bottom of the tanks, and the market will make WTI too expensive to export,” said Scott Shelton, energy specialist at TP ICAP Group Plc.
The continued price declines at Cushing have contributed to the price spread between the nearest two WTI futures contracts continuing to rise. The spread is hovering around $1 per barrel, after rising to the highest level in almost a month.
Movements in crude oil spreads are a closely watched measure of the balance between supply and demand, and currently indicate a shortage of barrels for immediate delivery, despite concerns about oil oversupply in the longer term.
Cushing’s current inventories of about 22.7 million barrels represent less than a third of the hub’s operating capacity of 78 million barrels. The rapid deterioration is fueling concerns that the hub’s ability to function normally could be at risk. Pipeline operators at the storage hub did not immediately respond to requests for comment.
Most read from Bloomberg Businessweek
©2024 BloombergLP