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Oil Can Push Higher As Cushing Stockpiles Collapse
Oil Can Push Higher As Cushing Stockpiles Collapse
Crude prices will likely get a fresh boost this week, as stockpiles at the key US storage hub in Cushing, Oklahoma, risk collapsing to the lowest level (aka “tank-bottoms”) in almost a decade.
Such a move would embolden those aiming for a return of $100 oil by year-end.
Cushing matters. Being the delivery point for the WTI futures contract, the rise and fall of the holdings is among the market’s most closely followed trends. So far in 3Q, inventories have slumped by ~47% to 22.9m barrels. That’s the lowest since July 2022 and that’s not far away from the 2014 lows.
If that comes to pass, it’d highlight the scramble for near-term supplies as the global market tightens up.
Estimates come on Tuesday, followed by the official print the next day.
JPM: “We Could Be Just Weeks Away From Cushing Effectively Running Out Of Crude”
JPM: “We Could Be Just Weeks Away From Cushing Effectively Running Out Of Crude”
Back in April 2020, the landlocked West Texas Intermediate crude oil price briefly crashed into negative territory – a stunning turn of events that cost traders massive losses – when the spot oil market found itself with an unprecedented glut as there was literally too much oil to be stored, and as such those traders who were assigned delivery would pay others just to take the physical oil off their hands. Well, in just a few weeks we may see the opposite scenario: no physical oil at all in the largest US commercial storage facility, leading to what may be a superspike in the price of oil.
In a note predicting the near-term dynamics of the oil market, JPMorgan’s commodity Natasha Kaneva writes that in a world of pervasive nat gas and coal shortages which are forcing the power sector to increasingly turn to oil (boosting demand by 750bkd during winter and drawing inventory by 2.1mmb/d in Nov and Dec), Cushing oil storage – which just dropped to 31.2mm barrels, the lowest since 2018…
… may be just weeks from being “effectively out of crude.” The bank’s conclusion: “if nothing were to change in the Cushing balance over the next two months, we might expect front WTI spreads to spike to record highs—a “super backwardation” scenario.”
Before we get into the meat of the note, first some background which as usual these days, begins with Europe’s catastrophic handling of its energy needs.
As JPM notes, the heating season of 2021/2022 is opening with record high global gas prices even as cold winter weather has yet to arrive…
…click on the above link to read the rest of the article…
“There’s A Feeling Of Bits Of Ice Cracking All At Once” – This Is The ‘Big New Threat’ To Oil Prices
“There’s A Feeling Of Bits Of Ice Cracking All At Once” – This Is The ‘Big New Threat’ To Oil Prices
One week ago, we reported that even as traders were focusing on the daily headline barrage out of OPEC members discussing whether or not they would cut production (they won’t) or merely freeze it (at fresh record levels as Russia reported earlier today) a bigger threat in the near-term will be whether the relentless supply of excess oil will force Cushing, and PADD 2 in general, inventory to reach operational capacity.
As Genscape added in a recent presentation, when looking specifically at Cushing, the storage facility is virtually operationally full (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 have already been denied.
Goldman summarizes the dire near-term options before the industry as follows:
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.
…click on the above link to read the rest of the article…
2 More Fracking-Related Earthquakes Hit Oklahoma Despite New Rules Meant to Prevent Them
2 More Fracking-Related Earthquakes Hit Oklahoma Despite New Rules Meant to Prevent Them
Two earthquakes registering at a 4.5 and a 4.4 magnitude shook frack-happy Oklahoma on Saturday, some of the strongest felt in the state this year. The stronger quake occurred just a few miles from the city of Cushing, which holds one of the largest crude oil storage facilities in the world.
The recent quakes struck only a handful of weeks after the Oklahoma Corporation Commission (OCC), the state’s public utilities commission, shut down several disposal wells around Cushing and issued new regulations meant to prevent more earthquakes in the area, according to Al Jazeera.
A local report said that the stronger 4.5 magnitude quake occurred around 5 p.m. Saturday evening and could be felt in the nearby cities of Stillwater, Guthrie, Sapulpa, Oklahoma City and other parts of the metro. There were multiple aftershocks in Cushing, recorded at 3.0, 3.2, 3.1, 2.8, 2.7 and 2.5.
Bob Noltensmeyer, Cushing Emergency Manager, told the Associated Press he had not received reports of significant damage in the area although there were “shattered nerves.”
“This one was pretty strong,” he added. “The whole house shook.”
A 4.4 was also recorded on Saturday at 4:20 a.m. about 18 miles southwest of Medford and about 100 miles northwest of Cushing.
America’s heartland used to register earthquakes from two a year to almost two a day. This year, roughly 700 earthquakes of magnitude 3 or higher has shook the state, compared to 20 throughout 2009, as the Associated Press pointed out.
The Sooner State’s seemingly never-ending earthquakes appear to be a man-made side effect of the country’s drilling boom. Scientists say that the injection of wastewater byproducts into deep underground disposal wells from fracking operations are very likely triggering the major increase of seismic activity in Oklahoma, which is not near any major fault lines.
…click on the above link to read the rest of the article…
The Truth About U.S. Crude Storage
The Truth About U.S. Crude Storage
Despite the popular narrative that we keep hearing, the U.S is not running out of crude oil storage. Yet there are those who are predicting that oil prices are going to fall to $20 or $30 a barrel, pointing to the crude oil storage numbers and suggesting that we are near maximum capacity and therefore a price collapse is imminent. (Although Goldman Sachs did some backpedaling on their forecast this week).
The argument goes something like this: US running out of room to store oil; price collapse next?
“The U.S. has so much crude that it is running out of places to put it, and that could drive oil and gasoline prices even lower in the coming months. For the past seven weeks, the United States has been producing and importing an average of 1 million more barrels of oil every day than it is consuming. That extra crude is flowing into storage tanks, especially at the country’s main trading hub in Cushing, Oklahoma, pushing U.S. supplies to their highest point in at least 80 years, the Energy Department reported last week.”
At first glance, the argument seems to be pretty straightforward. But let’s dig into the data a bit. Admittedly, if you look at the storage numbers in the nation’s most important oil storage hub (and the price settlement point for West Texas Intermediate on the New York Mercantile Exchange) in Cushing, Oklahoma, it’s easy to form the impression that storage is filling up and an oil price crash is inevitable:
…click on the above link to read the rest of the article…
