Friday, May 18, 2012

Cushing Oil Finally Released To The Gulf

After a glut of oil has piled up in Cushing, OK, the Seaway pipeline has finally completed work in order to begin sending oil to the coast. The pipeline was originally built in 1995 to send oil to Cushing where it could then be sent to where needed in the MidWest. Of course, this was back in the days when oil wasn't being produced on land.

Fast forward to 2011 and domestic production in North Dakota combined with oil from Canada had suddenly clogged up the storage tanks in Cushing. What has always amazed me is what did people expect when Cushing kept building new storage tanks?

Last week inventories rose 1M barrels to a record 45M. That is what happens when you build pipelines into a area, build up tanks to store the goods, but then don't have adequate pipelines out of the area!

The 150K barrel per day pipeline will help the glut in Cushing as that amounts to 4.5M barrels a month. What it has already done is reduce the spread between the WTI and Brent crude prices that reached a all time high of $27.88 back in October. The spread has already been halved, but it could remain high for a while as bigger pipelines are needed to fully close the gap. 

It will take until the first part of 2013 until work will be completed to increase the size to 400K barrels.

One interesting stat is that the oil will take 12 days to reach Freeport, TX which is about 500 miles away.

With the Facebook (FB) IPO the market has virtually missed this major event. The reduced spread of Brent will immediately help gasoline prices in the US. While at the same time higher WTI prices will help US producers. The spread has effectively hurt the US as consumers paid higher gas prices, but producers in ND and other areas didn't receive the full benefit.

This should bode well for US land producers and even oil service companies. Not to mention that just about everybody has missed the huge surge in natural gas prices to nearly $2.74 today. 


Disclosure: No positions mentioned. Please review the disclaimer page for more details. 





No comments: