U.S. Refinery Outages Cause Oil Backup in Cushing, Oklahoma
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There were several refinery outages this spring in south central U.S. resulting in less demand for oil causing backups of oil in storage resulting in price declines for WTI. <br>West Texas Intermediate (WTI) crude oil has been the historical benchmark for pricing in the oil industry. WTI until recently traded at a premium to the other chief benchmark Brent (North Sea oil). Brent crude was trading at $3 to $4 more per barrel than WTI this spring. It traditionally has traded $1 to $3 less per barrel until recently.<br><br>Most oil flows via pipeline from Texas and the Gulf of Mexico to Cushing, Oklahoma. There are numerous refineries in Cushing and the oil also flows to northern refineries from Cushing. The reduced demand from the refineries caused the oil to backup in storage in Cushing. Oil in pipelines flows in one direction and is not possible to reverse the direction. Cushing is landlocked. Once the oil backs up in Cushing there's no place for it to go until the refineries need it. It's unfeasible economically to transfer it to tanker trucks to deliver to refineries in other parts of the country from here.<br><br>The oil futures markets also contributed to this oil backup in Cushing. The price of oil in the later future contract months was higher causing speculators to buy oil for delivery in later months keeping it in storage in Cushing. Consequently, the refinery outages and the higher futures pricing depressed the price.<br><br>Cushing is a major hub for the U.S. oil industry. Oklahoma itself is one of the major oil producing States in the country. Producers like, Western Pipeline Corporation, from the Gulf Coast also ship their oil via pipeline to Cushing. In the past this oil flowed north to the Midwest refineries. These Midwest refineries are in decline and due to low usage in the pipeline system they have been reversed to deliver oil from the expanding supply of oil coming out of the oil sands of Alberta, Canada. This has increased the amount of oil coming into Cushing for the Gulf Coast refineries. In mid-April the 28 million barrels of oil storage were full.<br><br>To alleviate the pipeline bottleneck in Cushing it would be necessary to reverse pipelines and build new ones. A pipeline to the Gulf Coast is of particular interest where the oil could be moved via water. There is no easy solution to the Cushing bottleneck. Its effects on WTI pricing have stabilized now that the refineries are back online.
About the Author
Bob Jent is the CEO of Western Pipeline<br>Corporation</a>. Western Pipeline Corp specializes in identifying,<br>acquiring and developing existing, producing reserves on behalf of its<br>ndividual clients.<br>Read more at U.S. Refinery Outages Cause Oil Backup in Cushing, Oklahoma</a><br>View their website at: www.wpcorp.com<br>
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