Cushing Is Denying Storage Requests: Some Troubling Data From Genscape And Goldman

Tyler Durden's picture

Yesterday, one of the best-known providers of energy market intelligence thanks to its massive private and patented network of land, sea, and satellite monitors, Genscape, held a webinar titled the "Current state of the global oil market" in which it covered all the core aspects that investors in the oil space find concerning, among which the following:

  • Global oversupply of oil
    • OPEC's dilemma with Saudi Arabia keeping up pressure to not cut production
  • North American crude oil production forecast
    • Impact of sustained weakness in crude oil prices on U.S. production
    • What does the decline in U.S. production mean for the storage glut and refinery supply?
  • U.S. oil storage
    • Cushing, OK, storage record-highs in April 2015 and January 2016
    • Where will the crude oil go?
    • Expectations for additional storage coming online

While some the key topics discussed focused on the most followed issue, namely total US supply and commercial oil stocks, which as can be seen are now at a record high and rising...

... and in fact at 504 million as of today's DOE update which saw the addition of another 2.1 mmb last week, pushing total stocks to 78mmb (18%) above year ago levels...

 

...two charts stood out for us, perhaps the most important ones when it comes to the near-term trajectory of oil prices: namely storage capacity. Here Genscape joins the ever louder chorus that the US is approaching the capacity tipping point:

 

Further, Genscape adds that when looking specifically at Cushing, the storage facility is virtually operationally full (or at 80%) with just 4-5 more months at current inventory build left until the choke point is breached, and as we have reported previously, storage requests for specific grades being denied however the silver lining is that there is a lot of open pipeline space from Cushing to gulf coast (their full presentation can be watched here).

It is this capacity that is currently being filled because if looking at today's DOE breakdown, while PADD 2 saw inventories rise by 2.25 million barrels to a new record high 155 million, the Midwest storage hub at Cushing was up only 36,000 - a divergence which confirms that Cushing is now routinely denying storage requests, something we noted first two weeks ago.

... which has in turn prompted some industry participants to ask if Cushing is already operationally full?

Which brings us to another point brought up yesterday by Goldman's Damien Courvalin who warned yesterday that there are ever greater near-term risks of breaching PADD 2, where Cushing is located, storage capacity:

The large builds in gasoline and crude stocks have brought PADD 2 storage utilization near record high levels. While the recent decline in Midcontinent refining margins should help avoid breaching storage capacity, by finally bringing gasoline back into deficit, this will likely only exacerbate the build in crude inventories in coming months and should require further weakness in PADD2 crude prices to spread this build to the USGC. Weaker gasoline demand/exports, or higher margins/runs or finally resilient crude imports/production, could create binding storage issues beyond the intermittent Cushing WTI cash price weakness observed so far, which would require another large leg lower in crude prices to shut production in the Midcontinent and Canada. As we have argued, this continued testing of storage constraints should keep price and margin volatility elevated.

Which brings us to the key topic: is it excess supply or declining demand. Here are the facts: we know that OPEC may or may not "freeze" production at record output, even as Iran exports flood the market and US shale producers have no choice but to pump every last drop they can within the constraints of capex reduction.

Then there was the following just released earnings from the EIA, according to whose blog post, U.S. Gulf of Mexico (GOM) crude oil production is estimated to increase to record high levels in 2017, even as oil prices remain low.

EIA projects GOM production will average 1.63 million barrels per day (b/d) in 2016 and 1.79 million b/d in 2017, reaching 1.91 million b/d in December 2017. GOM production is expected to account for 18% and 21% of total forecast U.S. crude oil production in 2016 and 2017, respectively.

And then there is the demand aspect, which according to many is not a concern, but in reality as the charts below demonstrate, is sinking fast.

Exhibit A: US distillate consumption has now averaged just 3.5 mbd over the last 4 weeks, down a whopping 650,000 from this period year ago, as end-demand appears to have cratered.

 

This means that to make up for the plunge in demand, distillate stocks had to rise again, which they did by 1.4 mbd, now 27% higher than a year ago, and up to a record level for this time of the year:

 

Meanwhile, even as demand is declining, US refineries processed a record 15.8 mbd, up 406,000 bd form a year ago:

 

All of which suggests that with a broken OPEC cartel failing to cause supply declines, and with demand sliding, all interim steps in the process are operating and storing at or near capacity. Which in turn suggests that the warnings by the likes of Genscape, Goldman and others that US land storage is about to hit tank tops, are all too real.

It is only when the world realizes that this contingency is an all too real actuality, that the next leg down in the price of oil take place.

* * *

For those interested, the Genscape presentation can be watched in its entirety below

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Bangin7GramRocks's picture

Peak Oil...............Storage?

BandGap's picture

Buy it, put it back in the ground, use it later (like in a war, for example).

venturen's picture

they already do that....ever heard of the strategic oil reserve

Leopold B. Scotch's picture

The consolidation will happen as planned.  First you create massive over-investment via ginned up bubble, then you step aside as it collapses and all the competition is ruined, then you use your political-economic clout (and bailout money, fed ginned up $ billions of credit) to consolidate it all at pennies on the dollar, and then you control the asset and knocked out most competition.  Oligopoly resumed and cleaned of the riff raff trying to undermine you.

peddling-fiction's picture

@LeoScotch

Yes, that seems just about right.

All the crazy stock buybacks also help consolidate ownership while keeping the illusion alive, albeit at a high price.

 

macholatte's picture

Anybody look at this??

The U.S. plans to sell millions of barrels of crude oil from its Strategic Petroleum Reserve from 2018 until 2025 under a budget deal reached on Monday night by the White House and top lawmakers from both parties.
http://www.bloomberg.com/news/articles/2015-10-27/u-s-plans-to-sell-down...

The Strategic Petroleum Reserve is a U.S. Government complex of four sites with deep underground storage caverns created in salt domes along the Texas and Louisiana Gulf Coasts. The caverns have a design capacity of 714 million barrels and store emergency supplies of crude oil owned by the U.S. Government.

Current inventory -  Click to open inventory update window
http://energy.gov/fe/services/petroleum-reserves/strategic-petroleum-res...

RogerMud's picture

no, but I've heard of the Strategic Petroleum Reserve.

Head_Shots_Work's picture

They could store it at Fort Knox! I hear it's empty!

_ConanTheLibertarian_'s picture

I'm sure this will be spinned as a surge in demand.

Dragon HAwk's picture

Well technically they could just leave it in the Ground, that is a Kind of Storage..

Bangin7GramRocks's picture

True, but that option doesn't poison the water table or produce earthquakes. So that idea is a total nonstarter.

KnuckleDragger-X's picture

Depending on the well, once you start pumping it becomes tough to stop without problems......

Yukon Cornholius's picture

If they stop pumping in Siberia, it is very likely the pipes could freeze and break. The Russians are pumping until dry.

MSimon's picture

Once you start pumping you have to keep pumping until you are done.

jerry_theking_lawler's picture

The .fed will soon allow this accounting principle and then all will be well. Mark to Storage? (whatever kind of storage you want, aka bathtub, tank, or even the reservoir you drilled and are not producing).

KesselRunin12Parsecs's picture

Dump it in Warren & Becky's bathtub.

Squid Viscous's picture

do you think he eats ice cream out of her oft packed pooper?

Bangin7GramRocks's picture

I'd dump a hot load in Becky's bathtub. And by bathtub, I really mean dumper. And by dumper, I really mean turd cutter. And by turd cutter, I really mean fart box.

KnuckleDragger-X's picture

I see one more bump in prices as the refiners do their Spring turn-arounds for Summer fuel. The sheep will buy contracts based on a thick layer of BS and then the markets take a shit big time.....

mandalou's picture

bump in price of what? gasoline? crude?

 

jldpc's picture

Come on the guys on CNBC (from Chicago oil pits) just said we go back up over 34....because we are not falling on all of this "weak" news. So.....................

Boris Badenov's picture

I'm a buyer of DWTI under $200

Ghost of Porky's picture

We can store some of it in Chris Christie's pants.

4thHorseman's picture

Peak oil, anyone?

Bawhahahahahahahahahaaaa

4thHorseman's picture

Dino oil?
Fossil fuels?

LMAO

Where's the dinosaurs on Saturns moon Titan... Last time I checked NASA data there's hydrocarbon seas and vents on that moon. Hydrocarbons are a byproduct of continuing geological processes that originate in earths mantle and the geological structures of other orbital bodies as well.

The BS and pseudo science big oil pumps out to the sheeple and they buy it.

ebear's picture

The actual mechanism by which oil is produced isn't the issue. The question is, how long does it take? A million years? Ten million? Even if it's just thousands, it's still too slow to make any difference to the eventual outcome.

NotApplicable's picture

True, but the mechanism does matter, as it defines the amount of available oil today. Billions of years of geology provides far more oil than tens of thousands of years of rotting dinosaurs, even if the process takes millions of years.

Peak oil might potentially be a very large number by today's standards.

youngman's picture

I have said before if Cushing fills....the price goes below 20.....we will see if I am right,,,,

Ghost of Porky's picture

Drain Flint River, then fill it with oil. No one will notice.

Head_Shots_Work's picture

BWAH ha ha hah! Oh - this isn't funny - but sure it IS! How come fucking heads aren't being cut off in Michigan? Come on you 'angry righteous' - rise up - your children have been totally screwed. I guess the Batchelor must be on. 

NoWayJose's picture

Algorithms have flipped the switch to shorting. Didn't see these Cushing articles for the last two days - only bullish (or bullshit) articles about production freezes and increased demand.

Dragon HAwk's picture

Isn't lake Mead running dry? we could  pump it into there..  Oil is worth more than Water,  win win.. unless your thirsty  of course..

silverer's picture

Capitalism, baby. Let the market work! Awesome.

buzzsaw99's picture

it's a good thing congress didn't expand the spr as planned. they're smart you know. /s

Quinvarius's picture

LOL.  No.  Goldman is getting destroyed in oil.  Can't wait to see them puke up their shorts.  Even if Cushing were full, they would still get stopped out.  80% full is a panic time?  LOL.  Every 5 minutes Goldman is screaming bloody murder in oil.  Too funny.  This  is what you need to know about the next year:  http://phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-rigcountsovervi...

Deathrips's picture

GOldman will only be destroyed when the fed is independently audited. They are one in the same. they can take all the losses the market has to offer and come up swinging.

 

It sucks.

Fuck the FED.

 bought puts at the short term high again.....going down mr tyler?

RIPS

NotApplicable's picture

It sounds like 80% matters quite a bit once you consider the fact that they store different grades of oil in separate tanks. For all we know, that 20% capacity is for oddball grades that may never be filled, like all of that goofy tar-sand and fracking crap.

Gadocat's picture

Excellent...   EXXcellent.  Soon our tanks will be full and our plan will be complete.  A conflagration in the middle east oil delivery system and BWAHAHAH, complete ownership of global oil supplies.  yes...YESSS!

 

/sarc -- no oil terminals were actually destroyed in the making of this note.

Bank_sters's picture

Just dump it  in the rivers.  Problem solved.   

BigRedRider's picture

...and up from the ground came a'bubbling crude...

NRGTDR's picture

To me, this stockpiling looks to be prepping in anticipation for some sort of massive disruption. i.e. WW3

NRGTDR's picture

To me, this stockpiling looks to be prepping in anticipation for some sort of massive disruption. i.e. WW3

RogerMud's picture

what's the disposal cost of a barrel of oil?