Crude oil storage tanks are seen in an aerial photograph at the Cushing Oil Hub in Cushing, Oklahoma, USA, April 21, 2020. REUTERS / Drone Base

NEW YORK, Oct. 27 (Reuters) – Crude oil tanks at the Cushing, Oklahoma, storage and delivery center for U.S. crude futures are more depleted than they have been in the past few years. past three years, and the prices of older oil contracts suggest they will stay lower for months.

U.S. demand for crude among gasoline and diesel refiners has increased as the economy recovered from the worst of the pandemic. Demand across the world means other countries have turned to the United States for barrels of crude, also increasing Cushing’s mintage.

The oil hub is the largest and for decades was the most important storage facility for US barrels. That has changed in recent years as activity has shifted to the Gulf of the United States now that the United States exports about 3 million barrels of crude every day.

Analysts expect the decline in inventories to continue in the near term, which could further push up US crude prices which have already climbed about 25% in the past two months. The discount of US crude futures contracts against the international benchmark Brent is expected to remain narrow.

“Storage at Cushing alone has the potential to really rally the market to the moon,” said Bob Yawger, director of energy futures at Mizuho.

Cushing’s inventories fell to 27.3 million barrels, the lowest since October 2018, the Energy Information Administration said on Wednesday, about half of inventories at the same time a year ago. In contrast, Gulf stocks stood at 247 million barrels at the end of last week, up from 224 million barrels in the same period two years ago before the pandemic.

Cushing’s inventories fell due to accelerating U.S. demand, prompting domestic refiners to keep crude at home to deliver fuels such as gasoline and distillates to U.S. consumers, Reid I said. ‘Anson, senior commodities analyst at Kpler.

In addition, US production has been slow to recover from the declines seen in 2020. At the end of 2019, the country was producing around 13 million barrels of oil per day (bpd), but in recent weeks it has been lower. at 11.5 million bpd. At the same time, product supplied by refineries – an indicator of demand – is around 1% lower than pre-pandemic peaks.

Crude inventories at the Cushing, Oklahoma storage facility fell 31.2 million barrels in the most recent week, the lowest since October 2018.

Even with reasonably high inventories across the country, Cushing is still important as a delivery point for the US futures contract. As stocks fell, the spread between US crude and Brent collapsed. The spread narrowed to around $ 1.09 a barrel this week, from $ 4.47 earlier this month, which was about the widest spread since May 2020.

A further sign of strong near-term demand for U.S. crude, the premium for U.S. crude delivered in December versus December 2022 peaked this week of $ 12.48 per barrel, most since at least 2014, according to the data from Refinitiv Eikon.

Over the next three months, Rystad Energy expects refineries in the United States to grow by 500,000 to 600,000 barrels per day. This would exceed production gains of 300,000 to 400,000 bpd and keep the spread between the two benchmarks narrow.

“Only if OPEC (the Organization of the Petroleum Exporting Countries) steps in with more crude supply or if COVID shows its ugly head again, dampening demand, this high volatility will occur,” he said. said Mukesh Sahdev, senior vice president and head of downstream. at Rystad Énergie.

The discount for US crude to Brent hit its lowest recently since September 2020. Meanwhile, the premium for US crude delivered in December compared to December 2022 has reached its highest level since at least 2014.

Reporting by Stéphanie Kelly; Editing by David Gregorio and Marguerita Choy

Our Standards: Thomson Reuters Trust Principles.

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