Oil stocks in Cushing storage hub approach record set in May
Tanks likely to stay full as refiners seek to lower tax bills
For OPEC, there are few enemies more fearsome than the tiny Oklahoma town of Cushing.
With oil inventories at Cushing creeping near an all-time high, U.S. benchmark futures prices are struggling to advance despite the promised production cuts agreed to by OPEC, Russia and other producers. And the storage tanks are likely to stay full as refiners park crude in Oklahoma to lower their tax bills.
Cushing, which prides itself as the “pipeline crossroads of the world,” is the delivery point for the West Texas Intermediate crude contract. With tanks that can hold 77 million barrels of crude, enough to supply France for two months, it’s the biggest storage hub in the U.S. The last high point there came in May. Now, after a brief hiatus, the tanks are filling up once again. For the OPEC-led efforts to boost prices, that’s a major problem.
“Part of what OPEC, and in particular the Saudis want to do, is drain the swamp,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “To do that they will reduce deliveries to the U.S. That will eventually be felt at Cushing, but not in a long time.”
Stockpiles rose by 1.22 million barrels last week, following a 3.78 million jump the previous week that was the biggest since 2008. The inflows have pushed up stocks to 66.5 million barrels, within a whisker of the all-time record of 68.3 million set in May. With the promise of production cuts sending forward prices up, that’s encouraging traders and refiners to hold onto inventories, the last thing the Organization of Petroleum Exporting Countries wants to see.
"The near-term prognosis for Cushing balances is not particularly rosy," said Amrita Sen, chief oil analyst at consultants Energy Aspects Ltd.
Cushing is getting more oil partly because of seasonal factors. Every year, refiners in the U.S. Gulf Coast try to reduce inventories in December to lower their tax bills, traditionally parking excess crude in Oklahoma and elsewhere. Also, U.S. refineries typically process less crude at the beginning of the year, with January demand dropping by an average 899,000 barrels a day during the past five years.
Reductions in inventory by refineries in Texas and Louisiana “can contribute to outsized Cushing builds,” said Adam Longson, a commodities analyst at Morgan Stanley in New York.
With just 7,889 residents, Cushing sits about 70 miles (113 kilometers) northeast of Oklahoma City. Over the years, it’s developed into the key transfer point for oil flowing from West Texas and Canada to refineries in the U.S. Midwest and on the Gulf Coast. Since late October, Cushing inventories have increased by 8.1 million barrels, largely wiping out the 9.9 million drop from mid-May to mid-October.
The Cushing overhang is putting pressure on WTI prices, which have given up their gains after last weekend’s historic deal between OPEC and non-OPEC nations. WTI fell on Thursday below $51 a barrel, down from a peak of $54.51 earlier in the week.
The glut is also pushing the market deeper into contango, where prompt supply is cheaper than future deliveries. The discount for WTI delivered in January widened Thursday to $1.09 a barrel below February at 12:25 p.m. London. In April, when stocks were at a similar level, the spread reached $1.55.
Pressure at Cushing
“We may continue to see pressure at Cushing, where stocks typically move higher seasonally into year-end and keep pressure on WTI prompt time spreads,” Morgan Stanley’s Longson said.
After the January contract expires, the growing glut may also weaken WTI during the so-called roll period, when traders can exchange physical crude for three days after the futures contract has expired. Last month, when the December contract expired, cash prices fell to $1.40 a barrel below futures, the widest spread since April.
“Once January expires you are going to see some desperate people,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, in a telephone interview. “This bearish price structure isn’t going away.”
The impact of the Saudi production cuts will take time as Riyadh is reducing output from January onward, and Saudi crude takes about 45 days to arrive to the U.S. after sailing from the Middle East and around Africa.
“Week-over-week inventory builds at Cushing will be noise through year-end and offer an opportunity to exploit the short-term contango conditions,” said Chris Kettenmann, chief energy strategist at Macro Risk Advisors LLC in New York. “The clock starts Jan. 1 for OPEC/non-OPEC coordinated cuts.”
Keep these in mind as you contemplate the direction of the American government over the past 50 years and especially since the Obama election.
The Goals of Communism
(as read into the congressional record January 10, 1963, from "The Naked Communist" by Cleon Skousen)
1. U.S. acceptance of coexistence as the only alternative to atomic war.
2. U.S. willingness to capitulate in preference to engaging in atomic war.
3. Develop the illusion that total disarmament of the United States would be a demonstration of moral strength.
4. Permit free trade between all nations regardless of Communist affiliation and regardless of whether or not items could be used for war.
5. Extension of long-term loans to Russia and Soviet satellites.
6. Provide American aid to all nations regardless of Communist domination.
7. Grant recognition of Red China. Admission of Red China to the U.N.
8. Set up East and West Germany as separate states in spite of Khrushchev's promise in 1955 to settle the German question by free elections under supervision of the U.N.
9. Prolong the conferences to ban atomic tests because the United States has agreed to suspend tests as long as negotiations are in progress.
10. Allow all Soviet satellites individual representation in the U.N.
11. Promote the U.N. as the only hope for mankind. If its charter is rewritten, demand that it be set up as a one-world government with its own independent armed forces. (Some Communist leaders believe the world can be taken over as easily by the U.N. as by Moscow. Sometimes these two centers compete with each other as they are now doing in the Congo.)
12. Resist any attempt to outlaw the Communist Party.
13. Do away with all loyalty oaths.
14. Continue giving Russia access to the U.S. Patent Office.
15. Capture one or both of the political parties in the United States.
16. Use technical decisions of the courts to weaken basic American institutions by claiming their activities violate civil rights.
17. Get control of the schools. Use them as transmission belts for socialism and current Communist propaganda. Soften the curriculum. Get control of teachers' associations. Put the party line in textbooks.
18. Gain control of all student newspapers.
19. Use student riots to foment public protests against programs or organizations which are under Communist attack.
20. Infiltrate the press. Get control of book-review assignments, editorial writing, policymaking positions.
21. Gain control of key positions in radio, TV, and motion pictures.
22. Continue discrediting American culture by degrading all forms of artistic expression. An American Communist cell was told to "eliminate all good sculpture from parks and buildings, substitute shapeless, awkward and meaningless forms."
23. Control art critics and directors of art museums. "Our plan is to promote ugliness, repulsive, meaningless art."
24. Eliminate all laws governing obscenity by calling them "censorship" and a violation of free speech and free press.
25. Break down cultural standards of morality by promoting pornography and obscenity in books, magazines, motion pictures, radio, and TV.
26. Present homosexuality, degeneracy and promiscuity as "normal, natural, healthy."
27. Infiltrate the churches and replace revealed religion with "social" religion. Discredit the Bible and emphasize the need for intellectual maturity which does not need a "religious crutch."
28. Eliminate prayer or any phase of religious expression in the schools on the ground that it violates the principle of "separation of church and state."
29. Discredit the American Constitution by calling it inadequate, old-fashioned, out of step with modern needs, a hindrance to cooperation between nations on a worldwide basis.
30. Discredit the American Founding Fathers. Present them as selfish aristocrats who had no concern for the "common man."
31. Belittle all forms of American culture and discourage the teaching of American history on the ground that it was only a minor part of the "big picture." Give more emphasis to Russian history since the Communists took over.
32. Support any socialist movement to give centralized control over any part of the culture--education, social agencies, welfare programs, mental health clinics, etc.
33. Eliminate all laws or procedures which interfere with the operation of the Communist apparatus.
34. Eliminate the House Committee on Un-American Activities.
35. Discredit and eventually dismantle the FBI.
36. Infiltrate and gain control of more unions.
37. Infiltrate and gain control of big business.
38. Transfer some of the powers of arrest from the police to social agencies. Treat all behavioral problems as psychiatric disorders which no one but psychiatrists can understand.
39. Dominate the psychiatric profession and use mental health laws as a means of gaining coercive control over those who oppose Communist goals.
40. Discredit the family as an institution. Encourage promiscuity and easy divorce.
41. Emphasize the need to raise children away from the negative influence of parents. Attribute prejudices, mental blocks and retarding of children to suppressive influence of parents.
42. Create the impression that violence and insurrection are legitimate aspects of the American tradition; that students and special-interest groups should rise up and use united force to solve economic, political or social problems.
43. Overthrow all colonial governments before native populations are ready for self-government.
44. Internationalize the Panama Canal.
45. Repeal the Connally reservation so the United States cannot prevent the World Court from seizing jurisdiction over nations and individuals alike.
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