The Cushing Spillover “Domino Effect” Has Arrived

A little over a week ago, before we described the increasingly more perilous situation facing US refiners, we summarized the oversupply threat facing the biggest U.S. commercial hub located in Cushing, OK as follows:

“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.”

Today, we return to this so critical (if not now then certainly in the next few months) hub with a blog post by Genscape which looks at the troubling domino effect of an operationally full Cushing (and by extensions PADD2), and how this is starting to spill over into PADD3, aka the Gulf Coast storage, where things are likewise about to go from bad to much worse.

From Genscape

Cushing, OK, Storage Domino Effect Sends USGC Stocks Higher

U.S. Gulf Coast storage inventories have increased nearly 7mn bbls so far in 2016, and could continue to build as market participants seek storage there as an alternative to Cushing, OK, where stocks are near maximum capacity.

As of February 19, 2016, Gulf Coast stocks, including those in Houston, Beaumont-Nederland, TX, and Corpus Christi, TX, reached near 75mn bbls, only 739,000 bbls shy of the record high level reached in October 2015. On January 5, 2016, Cushing inventories surpassed a previous record high level by 125,000 bbls.

Due to extensive storage expansion, capacity utilization at Gulf Coast storage locations was lower the week ending February 19, 2016 at 58 percent compared with capacity utilization during the October 2015 high. At that time utilization was 62 percent. The inventory peak in October 2015 also followed a record-high at Cushing.

The 2015 stock high at Cushing, set April 14, was followed by inventory builds in the Gulf Coast and West Texas region. Of the Gulf Coast-monitored storage locations, stocks at Beaumont-Nederland were the first to hit a record high the week ending September 25, 2015, and other terminals followed.

Beaumont-Nederland inventories were also the first to hit record levels after Cushing inventories surpassed the previous high on January 5, 2016. Similar builds are likely to occur in other Gulf Coast storage locations, as they did in late 2015.

Lower waterborne crude loadings have also contributed to the recent increase in Gulf Coast stocks. As of February 19, 2016, Gulf Coast domestic waterborne loading volumes were 34 percent lower than the beginning of the year and 36 percent lower than 2015 average loading volumes. Additionally, less loadings have left the Gulf Coast. As of February 19, 2016, 80 percent of loadings were destined for other Gulf Coast ports, compared to 42 percent for the week ending January 1, 2016.

Since the crude export ban was lifted in December 2015, a handful of waterborne shipments have shipped from the Gulf Coast for destinations in Europe. However, these shipments are being displaced from preexisting destinations, such as refinery markets in eastern Canada. Therefore, total outgoing waterborne volumes from the Gulf Coast has not significantly increased since the ban was lifted.

via Zero Hedge Tyler Durden

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