Few oil market statistics are more closely watched by analysts and market participants than weekly crude oil inventories at Cushing, Oklahoma, the delivery point for the NYMEX West Texas Intermediate (WTI) light sweet crude oil futures contract. However, the market significance of inventory levels depends, in part, on total storage capacity, which varies over time. In December 2010, the U.S. Energy Information Administration's (EIA) first petroleum and other liquids storage capacity report added new information on working and net available shell storage capacity (as of September 30, 2010) to complement its weekly and monthly inventory data.
EIA's recently released second report on storage capacity not only updates those data through March 31, 2011, but also breaks out tank farm inventories from pipeline fill for crude oil at Cushing. The breakout is of particular interest, as analysts can now directly compare tank farm storage capacity to inventory levels, yielding a measure of storage capacity utilization.
As of March 31, working storage capacity at tank farms in the Cushing area stood at 48.0 million barrels, an increase of 2.1 million barrels (4.6%) since the end of September 2010. Cushing tank farms held actual crude oil inventories of 41.2 million barrels, implying a capacity utilization of 86 percent. Comparing those tank-farm inventories with total crude oil inventories held at Cushing of 42.3 million barrels implies pipeline fill of 1.1 million barrels at end-March. Assuming relatively constant pipeline fill volumes (admittedly a rough assumption), we can estimate tank farm stocks for the end of September at 34.8 million barrels out of total Cushing crude oil inventories of 35.9 million barrels, which implies a storage capacity utilization rate of about 76 percent.
The increase in estimated tank farm capacity utilization from September to March was partly the result of additional Canadian crude oil finding its way to Cushing since Phase II of the Keystone pipeline started commercial operations in February, completing a direct link from the oil sands in Alberta to the Cushing hub. Beginning around that time, Cushing began to see strong inventory builds which lasted through the end of March. Increasing production in the Midwest (PADD II), especially from the Bakken shale, along with well-documented outflow constraints at Cushing, also supported high inventories at the hub in 2011.
Even before EIA published its first storage capacity report, the trade press had been reporting that Cushing storage capacity had been on the rise. In addition, inventories in Cushing have been increasing relative to their historical-seasonal average for most of the past two years, as seen in Figure 1. Increasing inventories at Cushing, along with the almost five-percent increase in storage capacity since September, gives reason to view Cushing inventories relative to historical averages with caution; they demonstrate that market dynamics in the Midwest have been changing quickly, and comparing current inventories to averages which incorporate data from five years ago does not give a complete picture of the market as it currently stands.