Increase In US Exports Rendering Once Crucial Cushing Data Irrelevant

Houston is quickly becoming the new benchmark for oil, while Cushing is losing its relevance to the industry.

Cushing wasn't just relevant to the industry for storage purposes, but also for sector wide data purposes. According to Reuters, it "got its distinction in the early 1920s when tanks sprung up to store oil en route from Oklahoma and Texas to major metropolitan areas and refineries in the Midwest. In 1983, it became the delivery point for the newly-launched WTI futures contract CLc1."

For years, Cushing oil inventories were a staple for any business, trader or entity that dealt in the commodity, not to mention those who actively traded it on a daily basis. Cushing inventories were once the key indicator the the supply of crude oil held in the United States. These are the Cushing storage tanks in Cushing, OK:

(Photo: Reuters)

Decades ago, Cushing was seen as a fairly easy way to measure oil supply because the United States was not exporting any oil, but rather only importing it. This made it a novel and effective idea to have one major storage point to reference when trying to help gauge the amount of supply the United States had, which could quickly be used by traders and those in the industry to help with price discovery on oil futures contracts.

Just as the trading market for oil futures has evolved, replacing open outcry with computers, so has the efficiency and method with which we collect oil inventory data. Cushing seems to be “slowly going the way of the buffalo“ while focus turns further south. Reuters reported about Cushing's storage this morning:

But those tanks could soon drain to levels near effectively empty, even as U.S. oil production soars past a new record of 10.4 million barrels per day.

Oil supplies have fallen before in Cushing for a variety of seasonal or market-driven reasons. But this time, there is no shortage of crude in the market. In fact, U.S. production is straining pipeline and storage capacity.

The declining volumes stored at Cushing reflects a more permanent shift, underscoring the hub’s waning influence as the primary measuring stick for the U.S. oil market and the leading barometer of future supply, demand and prices.

Things have changed in the industry over the years. Nowadays are oil exports play as big of a role as our imports and, with that, our infrastructure needs have vastly shifted.

The most obvious change in our infrastructure needs naturally and organically pushes focus toward port cities like Houston to be better indicators of oil activity coming both in and out of the United States. To arrive at spot prices, traders need to have a full grasp on what is now a much more dynamic oil inventory situation that it was decades ago. For this purpose, Houston is now the area most traders are focusing on and want to replace Cushing as a gauge for the oil market in the United States. The article continues:

Instead, producers are increasingly shipping directly to seaports such as Houston, where vessels carry the oil to dozens of countries worldwide. That reflects a major transformation in global crude flows since the United States lifted a four-decade ban on oil exports in late 2015. Some traders and buyers argue the benchmark needs to change to reflect this.

Joshua Wade, a crude oil marketer in Oklahoma, sees the benchmark delivery point moving south before long.

“That’s the direction it’s moving,” he said. “As opposed to importing, now you’re exporting through the same infrastructure ... The oil capital of the nation is in Houston.”

Although it ends decades of focus on the Cushing area for the oil industry, this move toward establishing a new focus on Houston is commensurate with an oil market that has changed significantly over the last several decades. In addition, new pipelines are being built and are expected to come online over the next 2 years, as the country's oil infrastructure continues to evolve to meet the needs of both importing and exporting. 

Cushing's future may not be completely bust, however - it could simply wind up as off-shore gulf storage, or a to act as a back up, rather than a primary storage site:

A spokesman for Magellan Midstream Partners, which owns about 12 million barrels of Cushing storage, said it will remain important because of its connections to the Gulf and Midwest.

Cushing is also connected via pipeline to the Gulf, 500 miles to the south, and can offer cheaper storage than what’s available on the coast, said SemGroup’s Conner.

“I believe Cushing’s next chapter,” he said, “is that it’s going to become an offsite Gulf Coast storage center.”

But Cushing's relevance seems to be on the way out, as least as a crucial data point for the industry. Just as markets "evolve", so do their data points and methods for collecting crucial sector wide data. Now, if we could only get the Fed to do the same with the way it measures CPI.

Comments

Pinto Currency Juggernaut x2 Fri, 04/13/2018 - 00:22 Permalink

US crude stockpiles are plunging at a seasonal point where they should be rising strongly.

OPEC constriction.

 

"US crude exports have averaged 1.47 million b/d so far in 2018, compared with 773,000 b/d in the year-ago period. And imports have averaged 7.7 million b/d year-to-date, compared with nearly 8.2 million b/d a year ago."

https://www.platts.com/latest-news/oil/newyork/us-crude-stocks-increase-remain-below-five-year-10327153

In reply to by Juggernaut x2

helloimjohnnycat Juggernaut x2 Fri, 04/13/2018 - 01:15 Permalink

 

Could happen.

No matter what, I'm ready.

Have wheels for all occasions.

Remember the old Honda slogan : " From Mighty to Mini...."

I've got that covered. Probably lacking in the " meeting nice people " dept., but hey, nobody's perfect.

In the 70's the motorcycle rider was dangerous because of himself.

Today, the older riders who survived are the safe ones, not the auto drivers texting & checking fuckbook likes from queered-off geeks.

 

Here's something to consider _

If the gas lines form per the embargo days, the Big 3 can kiss their obscene truck prices & profits bye-bye. Won't hurt my feelings.

 

 

In reply to by Juggernaut x2

Juggernaut x2 Fri, 04/13/2018 - 00:07 Permalink

The plebs are going to be paying $3.50+/gallon this summer W/O Syria and the MidEast going hot- if  Petulant Don gets his little war on behalf of Israel will it be $5, $6, $7/gallon?

Endgame Napoleon Jedclampetisdead Fri, 04/13/2018 - 07:57 Permalink

Where are all of the cracker-jack scientists, coming up with an alternative fuel?

In America, globalists always tell us that immigrants create most of the cutting-edge businesses and produce the greatest scientific innovations. 

We have never had more immigration; we are saturated with 40 years of immigration at over 1-million-per-year new legal immigrants and umpteen-million illegal immigrants.

Education is supposed to spark innovation, and the population has never contained so many people with so many years of education under their belts. 

Women add to “the talent” pool. Never before have so many women had degrees and advanced degrees. Ditto for minorities, and women are regarded as a minority in America, although women are, in fact, the majority, including in universities.

Childbearing-aged women comprise the biggest portion of the workforce, with government and corporations catering to the frequent absenteeism needs and the workplace social-clique needs of working mothers like never before in history. 

Scientific research is often put on the back burner by corporations seeking to maximize short-term profits, but research is required to achieve breakthroughs, including when developing an alternative fuel.  

Research money is plentiful in America. Universities revolve around chasing research grants from government and industry, focusing on procuring research money more than on students and rewarding faculty accordingly.

 

In reply to by Jedclampetisdead

truthalwayswinsout Fri, 04/13/2018 - 01:01 Permalink

There is so much oil from fracking it is rapidly changing everything. The US is becoming the #1 gas and oil producer and exporter for the world.

Russia, Saudi Arabia, and the likes of Venezuela are finished and all of them will soon go bankrupt.

The lies told about fracking are legion and now it is clear that they are completely false.

By 2020 almost 50% of our current trade deficit will disappear because of the oil and gas exports. The only thing holding it up is delivery ability but the ports and pipelines are coming online.

The hilarious part is fracking still has a long way to go as far as price reductions.

Muhammad the Half-breed Obama tried to stop it and despite all of the blatant obstacles it is Trump's one clear and resounding victory.

Too bad he can't repeat that success with immigration, and trade. But if you believe in strategy, he didn't start the trade war until the tax cuts so companies would have the necessary incentive and capital to build new automated factories in the US. So it is no coincidence that the trade wars started the next week after the tax cuts.

And his immigration policy simply suffers from stupidity in enforcement. Have a six month amnesty period for all employers, during that time arrest employers as fast as you can and everyone will get probation but after the six month period if you hire an illegal it will be asset forfeiture of the business. If you turn yourself in during the six months it will be probation but if you do not after six months your business will be taken.

Also for immigration he needs to start bounty enforcement where local citizens can call in and report violations and agents can act immediately. I have 4 homes in my area all getting new roofs. All 4 different roofing companies have nothing but Mexican crews working. It would be easy for people to take pictures of the illegals and call in and then have agents come out and arrest the employer. Watch how fast illegals will not be able to find work.

 

bshirley1968 truthalwayswinsout Fri, 04/13/2018 - 08:05 Permalink

Your name is right, and it is why you are and will always be a loser.

News Flash! Dumbass! Russia pumps 11 million barrels a day and uses 4 million per day. The US pumps 10 million per day and uses 19 million per day.

Now I am not sure where you were taught maff, but you need to go and try to get your money back. It amazes me how stupid some people will be just to convince themselves that "My team is winning".

When you come up with solution to that maff problem, let me know.

In reply to by truthalwayswinsout

dunce Fri, 04/13/2018 - 01:48 Permalink

We should not be selling any oil or gas outside our country except for very limited amounts. Our future depends on energy independence. Other countries are selling oil at free market prices and that is as it should be.

Easyp Fri, 04/13/2018 - 04:03 Permalink

Lets all rush out and buy a Tesla then we will not need oil....the sun will shine brighter, clean air, flowers and unicorns.