Bloomberg)– Oil storage tanks at a key US crude hub in Cushing have drained to near their bottoms as a massive new pipeline in Canada diverts flows elsewhere, muddying market signals that traders have long relied on.
Inventories in Cushing, Oklahoma, have been dwindling for the past four months and now sit near the lowest in a decade for this time of year. Market participants say the drawdown — which typically takes place as fuel demand rises during the driving season — was exacerbated this year as the expanded Trans Mountain pipeline shifts Canadian oil supplies onto the country’s Pacific Coast and away from the US Gulf Coast.
The expanded pipeline has moved about 400,000 barrels of crude a day since starting operations in May, and Cushing’s tanks have lost almost 13 million barrels of oil during that span. Flows of Canadian crude to the US Gulf Coast have declined to the point where a competing pipeline system owned by Enbridge Inc. mostly operated without the congestion it typically experiences during the US summer driving season.
European demand for US crude is also pulling barrels out of storage at Cushing, traders said, particularly since buyers are on the hunt for similar grades after supply disruptions in Libya.
“With Libya risks, I tend to think storage will stay at tank bottoms in the near term, and the market will make WTI too expensive to export,” said Scott Shelton, an energy specialist at TP ICAP Group Plc.
The continued drawdowns at Cushing have helped prop up the price spread between the nearest two WTI futures contracts. After climbing to the highest levels in nearly a month, the spread is hovering near $1 a barrel.
Movements in crude spreads are a closely watched gauge for supply-demand balances, and they are currently signaling a shortage of barrels for immediate delivery despite worries about a longer-term oversupply of oil.
Cushing’s current stockpiles of about 22.7 million barrels represent less than a third of the hub’s working capacity of 78 million barrels. The rapid decline is stoking concerns that the hub’s ability to operate normally may be threatened. Pipeline operators at the storage hub didn’t immediately respond to requests for comment.
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